AFTER THE incessant build-up to Facebook’s initial public offering (IPO) last Friday, the end result probably left more than a few humming the old Peggy Lee song, “Is That All There Is?”
Despite endless hype, the company’s freshly minted shares have remained stubbornly flat, leaving the company without any increase in valuation above its debut market capitalisation. Yesterday, shares even dipped below their offering price. Still, the company raised $16 billion and hovers at a hefty $104 billion market capitalisation, making Facebook’s launch the second biggest IPO in the Nasdaq stock market’s history. And hoodie-wearing founder, Mark Zuckerberg, is at last a real rather than paper multibillionaire at 28 (and a husband to boot, having married the day after the IPO).
But Facebook’s lacklustre market entry has immediately raised questions about the valuation of the company. At $104 billion, investors are saying the company is worth more than well-established companies like Amazon (at $98 billion), or Dell and HP combined. Or to put it another way, the Facebook page of any of its 900 million users is now valued at about $115. Yet the company only makes $4.39 per user, per year. It will have to have explosive growth, and generate 10 times the revenue it does right now, to justify its current valuation. Meanwhile, users are increasingly privacy sensitive, wary of having their personal data stored and analysed, or used to generate advertisements. Facebook needs new business ideas, and it isn’t clear where they will come from.
All of this will feed an undercurrent of worry that we might be in the midst of a social media “bubble” market, similar to the one that inflated around hugely overvalued internet companies in about 2000. That market’s pop ultimately led to a severe shakeout across the industry and contributed to the recession in the early part of that decade. And yet. Facebook’s astonishingly fast rise and its sheer size (if it were a country, it would be the world’s third largest in population) are a reminder that no one should write off the social media giant too quickly. Don’t forget, not so long ago, many were swift to dismiss one-time internet business forerunners like Amazon and Google too.
Facebook and others in the social media milieu are out at the internet’s entrepreneurial edge, exploring how to capitalise in new ways on the web’s vast population. Some are going to succeed spectacularly. Facebook, if it is nimble and smart enough, may well be in that group.