There’s no place to hide what Facebook Inc (NASDAQ:FB), advertisers, college recruiters, and employers can discover about you. A new study from the University of Cambridge correlates Facebook likes to age, sexual orientation, IQ, political affiliation, drug use, and much more with a high degree of precision. The scientific study used 58,466 US volunteers to complete the study entitled, “Private traits and attributes are predictable from digital records of human behavior.” Examples: if you’re applying to elite colleges or rocket science jobs, don’t Facebook “like” Lady Antebellum, Sephora, or Harley-Davidson, Inc. (NYSE:HOG), as these have a strong correlation to a low IQ. If you want to appear brainy, “like” Stephen Colbert and curly fries.
Yet another privacy concern is now heaped on the other reasons for users to leave Facebook Inc (NASDAQ:FB), besides ad exhaustion and the allure of other social media venues.
Will this drive off Facebook users?
Facebook Inc (NASDAQ:FB) lately is aligned more with advertisers than users’ concerns over privacy. Will ad exhaustion and privacy concerns spur more defections?
In their annual report released on Feb. 1, Facebook described its number one risk: “Our financial performance has been and will continue to be significantly determined by our success in adding, retaining, and engaging active users.” Just days later the Pew Research Center came out with a disturbing report for Facebook Inc (NASDAQ:FB) shareholders that fewer than 5% across all age groups plan to spend more time on Facebook, as well as findings that a majority of Facebook users plan to take a break from the site.
As Facebook increasingly feels pressure to monetize, it rolls out more ad schemes, almost on a daily basis. The possibility of ad exhaustion and privacy concerns provoking user defections is very real. Another concern is that big advertisers may pause, as the US Federal Trade Commission is requiring the same disclosures for Facebook and Twitter as it does for traditional media. For example, a big pharma company running a full page on side effects in a magazine would have to run them on Facebook Inc (NASDAQ:FB) as well.
Facebook rolled out an application last September called Custom Audiences, in which only “managed advertisers” were able to target advertising using only a potential customer’s email address, phone number, or user ID. Advertisers seemed to like it, and Facebook COO Sheryl Sandberg has been praising Custom Audiences as the best option for targeting customers. Since then other advertisers are able to use it and Facebook has been beta testing an expanded version called “Lookalike Audiences.”
It’s not as though there aren’t Facebook alternatives. There are, like At The Pool with only a million members compared to Facebook’s billion users. Tumblr and Twitter are very relevant rivals, especially among teens. Even Washington politicos are looking more to Twitter than Facebook Inc (NASDAQ:FB) to reach constituents.
With all these headwinds, Facebook Inc (NASDAQ:FB) is looking like a much worse investment than LinkedIn (NYSE:LNKD). Not even the news that Netflix, Inc. (NASDAQ:NFLX)’s streaming customers would be able to share what they’re watching with Facebook friends helped the stock. It closed down 2.69% on March 13. Daily, it’s looking less likely that it will return to the $45 highs when it first IPO’d last May. The P/E is an astronomical 2,783.00, and quarterly earnings growth is -78.80%, with short interest rising. To be fair, analysts predict a 29.04% five year growth rate.
Why not get social with LinkedIn?
LinkedIn Corp (NYSE:LNKD) is looking like the social media winner of 2013, climbing to a 52 week high on March 13 of $179.27. It recently partnered up with Intuit Inc. (NASDAQ:INTU), which is another name I like, especially during tax season, to help small business with their first hires. Both will be offering discounts on software and hiring packages. This is a match made in heaven, with LinkedIn as the largest professional social network and Intuit as a leading business and tax software provider.
The Street seemed to like this more for LinkedIn, but LinkedIn has one of those P/Es that’s hard to defend at 933x earnings. It drops down to an 85.78 forward P/E. Nonetheless, the stock has soared 91% over 52 weeks and its recent purchase of Pulse, a news feed, for $50 million will probably compete favorably with Facebook Inc (NASDAQ:FB)’s improved News Feed design. The company just reported much better than expected earnings and has no debt. Analysts predict an extraordinary 60% five year EPS growth rate for LinkedIn.
A taxing choice for value
Intuit gives the most value for the investing buck with a 1.00% yield and a forward 17.53 P/E. This name is only up 11% over 52 weeks. It reports again on May 21 after its all-important tax season.
Intuit is the slowest grower among these three at an expected 13% five year EPS growth rate. However, it has its portable credit card reader and mobile payment system, Go Payment, that competes with eBay Inc (NASDAQ:EBAY)‘s PayPal and privately held Square, which doesn’t seem to be reflected in earnings estimates.
Intuit is undoubtedly going to benefit from the taxing (pun intended) problem H&R Block, Inc. (NYSE:HRB) has been suffering with–delayed refunds. With a more reasonable PEG of 1.46, Intuit is much more a value than these social media giants. On a day when Oracle Corporation (NASDAQ:ORCL) spontaneously combusts after earnings and brings a host of similar names with it, Intuit hangs tough.
The Bottom Line
This new Facebook “likes” study just adds another privacy concern over possible abuse, but the main issue is users getting sick and tired of ad bombardment and profile manipulation. The younger users will mature and go to LinkedIn when it’s time to move out of the basement and get a job.LinkedIn is rich on valuation but it’s taking steps to become more valuable for its customers, rather than Facebook’s using their users to enrich advertisers.
Intuit’s partnership with LinkedIn is natural and adds value to both companies. Intuit is the value name here, but LinkedIn has the growth.
And yes, I “like” Stephen Colbert and curly fries.
The article What You Like On Facebook Could Change Your Life originally appeared on Fool.com and is written by AnnaLisa Kraft.
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