Facebook's
Face Plant is Just the Opening Act
The
tech giants are now trying to come to grips with problems, largely of their own
making, that they are unable to solve. Could be time for some adult
supervision.
Executive director, Ed Kaplan Family Institute for Innovation
and Tech Entrepreneurship, Illinois Institute of Technology @tullman
Every once in a while,
even the tech untouchables make mistakes that are so obvious and obnoxious that
the world, and even the stock market, is forced to take notice. We're watching
a few of these unrecoverable errors take hold right now and slowly leak into
the consciousness of the general public. That can't be good news for these
companies.
Twitter continues to
extinguish millions of fake accounts and discloses that, as a result, its
recent apparent growth in users is gossamer. More ominously, this looks more
like a race that Twitter will never win because the machines can spawn new bots
and fake accounts much more quickly, easily and cost-effectively than the
troops at TWTR can swat them away. The situation at Facebook is no better, and
probably much worse, because at least the guys at Twitter are trying to address
the issues while the frauds at Facebook still largely have their heads in the
sand.
I've been a big fan of FB forever, but the romance is finally
over. As they lurch stupidly from one crisis to another and offer a continuing
stream of lame excuses and amateurish apologies, the youth, insulation and
inexperience of the FB management team led by the Zuck is becoming more
obvious; and he looks more foolish and out of touch every time he opens his
mouth. Anyone who thinks that there's nothing fake about denying the Holocaust
is a moron. The Zuck is leading the pack straight into the swamp and taking a
well-deserved beating at the same time.
Here's a flash. You
don't ever want to be this season's pin cushion or poster boy for arrogance and
ignorance when the world starts throwing shade. What we're seeing right now is
Schadenfreude on steroids. Ordinarily, seeing the boys get their comeuppance
would be somewhat entertaining, but unfortunately, when the big tech guys
stumble, the little guys (like us) eventually take it in the shorts.
I expect that the
longer-term (and surely negative) financial consequences are just beginning to
be felt by the masses in the market and that can't be good news for IRAs or
401(k)s, whether they're stuffed with tech stocks or just holding tracking
funds subject to the same downturns. We could be looking at the beginning of
the end of the party. The traders are already starting to make their moves and,
typically in these cases of rapid and radical downturns, we civilians are
always the ones left holding the bag because we can't get out of harm's way
fast enough. FB, Netflix (which will likely weather the storm and come back)
and TWTR are just the first dominos to fall. (Note: I do not own these
stocks.)
I say this with clear
understanding that the vast majority of traders don't care about much of
anything substantive except stock movement, velocity and volatility. For them,
any directional action is apparently equally okay as long as things just keep
moving up or down. As Jackson Browne wrote in My Opening Farewell:
"there's a train everyday, leaving either way." And, I've also come
to realize (no surprise here) that money doesn't really care who makes it and
that morals and some basic decency don't really matter much to the market.
When the world gets
sufficiently angry, and never mind the fact that these "kids" have
been given corporate protections and crazy governance provisions that
essentially make them totally secure in their positions, there will come a time
and a reckoning when even their clueless and greedy directors can no longer
take the heat and will have to make at least some cosmetic changes in the
clubhouse. They will need to bring in some grownups.
This actually isn't
good news for us or for these stocks because the grownups don't have any idea
of how to keep growing these businesses (maybe no one does at this point) and
they have even less ability to solve some of the nasty problems and clean up
the stuff that's been shoved into various closets. Worse yet, they're going to
take their sweet time in doing anything because they don't want to make things
worse if that was even possible.
All of which means
that there's only one direction for the stock prices of these companies to move
for the foreseeable future, and that's further down. Hanging on to these
stocks and hoping for the best is a lot like trying to nail Jell-O to a tree.
Even the biggest hammer and the strongest nail won't keep the stuff from ending
up in a puddle at your feet.
PUBLISHED
ON: JUL 31, 2018