Social media faces tougher times ahead

The sorry performance of Facebook’s shares has ended the flotation ambitions of other social media businesses and could lead to many being swallowed up by larger technology companies, according to a firm that advises the industry.

Magister Advisors says Facebook itself could become a takeover target for a rival like Google if its market value continues to fall.

Managing director Victor Basta said: “IPO markets were expecting Facebook to be the tide to lift all social media boats. In hindsight it’s looking like a Thelma and Louise moment instead.”

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Magister forecasts the social media industry will now see accelerated consolidation as smaller, specialised players combine to gain scale rather than going it alone on the stock exchange. The industry is also being forced into taking a more profit-driven approach.

“The land grab for a user base is now largely over and the challenge now is flip ‘potentially lucrative’ into ‘plain old lucrative’,” Basta said.

“We forecast that the rush will be on to consolidate through M&A within the social media ecosystem. If Facebook had floated at a more realistic valuation, the dynamics might well have been different, but this market is now all about M&A.”

He said the most significant potential casualty of the closure of the social media IPO window is Twitter.

“Twitter is finding it very hard to monetise its user base and it is very clear that the investor community is now solely focused on how these companies make money,” he said.