3 Reasons Why Facebook May Fail

This week the social media goliath, Facebook, made its initial price offering (IPO) amid two major controversies involving Nasdaq's mishandling of investor' stock orders and Morgan Stanley's unfair dissemination of performance forecasts solely to industrial investors. Although most media attention has centered on these developing scandals, there might be more bad news ahead for Facebook.

In accordance with the SEC's filing rule 424(b)(4), before its scheduled IPO Facebook released its prospectus to the public. Within the prospectus, Facebook exposed some major risks and challenges that could spell doom for the social media giant.

First, Facebook confirmed that it generates a substantial majority of its revenue from advertising; which means that a loss of advertisers (or reduction in spending by advertisers) could seriously harm Facebook's earning potential.

Second, growth in the use of Facebook through mobile devices has not proven to be profitable - as of yet. Therefore, use on mobile devices as oppose to use on personal computers may negatively affect Facebook's revenue and financial outlook.

Third, Facebook's business is subject to complex and ever changing U.S. and foreign laws regarding privacy, data protection, and other issues. Since the laws and regulations in many jurisdictions have simply not kept up with this technology, the uncertainty of legal regulations and enforcement can potentially harm Facebook's operations in the near future.

Note: this list is not exclusive. Facebook also points out that it operates in a highly competitive industry, which harbors key players - such as Google+ and several international tech companies - poised to advance on Facebook's market share.


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