It’s not every day that a man takes his company public, gets a valuation of a $104 billion, pockets about $22 billion for himself and also gets married. It’s also not every day that a company loses its ‘too big to fail’ status, has its stock prices tank within hours and suddenly has the world predict the beginning of its end. And all of this happens within one week. Welcome to the world of Mark Zuckerberg and Facebook.It’s a Biggie
The Facebook IPO was a momentous occasion. It was proof once again about how bulletproof the online world was and the confidence investors had in ‘new age’ business. The Facebook IPO was all about big numbers: the company valuation made it 10 times bigger than Google and even bigger than Disney, Amazon and McDonald’s. It made Zuckerberg one of the richest men on earth and every person who has a Facebook account (you) was personally valued at around $110 each.
Those were the good parts. The not so good are equally exciting. In 2011, Facebook’s net income was only about $1 billion and some change. When that number gets thrown in, it makes it equivalent to over 100 times the net earnings. That’s historic. Compare that to Apple Inc. (14 times) and Google Inc. (19 times), and it’s a disaster waiting to happen.
LinkedIn, Groupon and Zynga – all of them suffered after an IPO. But that pales in comparison to what could happen here. Facebook could take some brutal hits, resulting in the stock price going down to half or even one third in less than 18 months. It can also have a ripple effect on its users. Could this IPO be the start of the downfall of Facebook?
There is no denying the fact that the biggest problem is the over- valuation. Facebook as a company just isn’t worth $100 billion. This is turning out to be a typical story of greed as well as impossible-to-manage expectations. To justify that kind of pricing, Facebook will have to perform out of the box – and it just hasn’t shown any proof until now that it can.
Yes, it has 900 million users and growing. Yes, it has some pretty good (as well as some pretty sneaky) ways of earning revenue. It has been aggressive, has always been trying new things, doesn’t give two hoots about your privacy and has made strategic acquisitions (some at silly pricing). But put all this together and it has still made just $1 billion. That is a problem. A huge one.
Many believe that the best from Facebook is still to come. That it can mine data better, create more personalised advertisements and outgun Google. Hogwash. Advertisements on Facebook are very different. When Google pops up a targeted ad, it’s because you are actively searching for something and it gives you relevant ads in sync with your activity. But on Facebook, your primary purpose is to put up updates about yourself and comment on someone’s new pictures. That’s it. Advertisements here are taken to be pesky, random and unsolicited.
13 and counting
A critical surge for Facebook must come with an even bigger number of users. While Facebook is losing momentum in some countries, it is still growing in most but not at the same pace. Many users are already feeling Facebook fatigue and don’t use their accounts as much as they used to.
The new, aggressive publicly held Facebook will need to turn this slight slowdown around in a big way. One of the controversial ways it may do it is to relax the minimum age down from 13 (denied by Facebook), thus fuelling in millions of new young users. I find that almost comical. Millions of users are already under 13. If you are under 13 and really want to be on Facebook, there isn’t much to stop you from just lying and getting on with your business. The deluge won’t come from here – but it must come from somewhere.
On the Go
Another huge source of income can come from Facebook on mobile phones. More people own mobile phones than computers and people prefer to check into their accounts on the go. As a whole new generation of mobile users come in, Facebook could get some serious numbers.
Unfortunately this will remain a pipe dream. The mobile phone screen isn’t very conducive to all this activity. Between all the updates, pictures and streams, there is hardly any space to throw in advertising and other revenue earners. In fact, the backlash to a cluttered small screen has already been felt by Facebook. So while it may grow its user base on the mobile, it may not be able to make much of it.
Congratulations on the wedding and the IPO. It must be quite a feeling to have pulled off both with varying degrees of success. I know that a mix of greed and bad advice led you to upping the stock price days before the IPO. There’s nothing seriously wrong with that – after all, it increased the money in your personal pocket by a few billion dollars.
But now it’s time to forget about what’s been done and move to the next level. A level where you show the people who had faith in you, investors who put in their hard-earned money and savings into your stocks, and the people who still believe in you why you think your company is worth a freaking $100 billion! Forget all those who say $104 billion isn’t bad for a stolen idea or even that this is the beginning of the end for you. It’s time to put those naysayers in their place.
Maybe you have plans that nobody knows about, radical ways of justifying this kind of valuation, revolutionary ways of earning 10 times what you do today. Buddy, I sure hope you do – otherwise 900 million people are going to feel cheated and let down. You’ve been poked – now it’s time to sit up and pull off the greatest miracle in the history of the world.
Rajiv Makhni is managing editor, Technology, NDTV, and the anchor of Gadget Guru, Cell Guru and Newsnet 3. Follow Rajiv on Twitter at twitter.com/RajivMakhni
From HT Brunch, May 27
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