Facebook stock was opened to the general market today and it's performance was lackluster. It's unfair to make such a statement because one day does not a trend make. But...

Facebook has yet to show what value it has for businesses. This is important because Facebook's only relevant revenue stream is from advertisers. The platform has a huge potential for racking up ad impressions, but the value of these impressions is unknown. The ROI is impossibly difficult to measure. Many brands are still in a rush to gain fans because more fans equals more impressions, but most fans place little to no value on their own "liking" of a brand.

There are studies that attempt to associate a monetary value with a user that has "liked" a brand, but I've not seen or heard of one that had conclusive results... I may have another brief post on the kind of misleading and erroneous claims such reports can make.

Advertising on Facebook is still as much a defensive investment against competitors who are also advertising there, as it is a faith based strategy that volume of impressions will overcome the low value per impression. Perhaps if Facebook can figure out how to target users effectively the value proposition will change. I don't think they've figured this out yet.

All of this doubt makes Facebook's valuation unrealistic and I don't believe the stock will do well in the near term. Betting on this stock seems to me to be more about betting on the emotions of other investors and not on the company. That's not a strategy I like to follow.

UPDATE: The WSJ weekend edition (May 19-20, 2012) claims sources familiar with the matter that say Morgan Stanley (the lead underwriter of the IPO) actually bought up additional shares on Facebook's first day to prop up the share price so that it wouldn't fall below the initial offering price of $38 per share. Ouch.