The Facebook phenomenon
THE GROWTH and success of Facebook is truly phenomenal. From a project concocted by a student hacker in his Harvard dormroom in 2004 it has become the giant of the web with 483 million people using the social network every day, one million of them coming from Ireland.
Despite its unarguable success the question remains; Is Facebook really worth $100 billion?
That’s likely to be the valuation put on the website when it makes its stock market debut in the US later this year, probably in May.
The hacker who had the vision for Facebook, 27-year-old Mark Zuckerberg, still controls the company and is potentially worth $25 billion after the flotation. Despite his youth Zuckerberg has shrewdly managed to keep control of his creation; he will have 56.9 per cent of the voting power despite owning only 28.4 per cent of the stock.
But with vast riches will come responsibility. Mr Zuckerberg has always kept information about his company as closely guarded as possible. Starting with this week’s filing of a prospectus Facebook will have to share key information about its financial performance with the public at large.
To date Mr Zuckerberg’s control has enabled him to block any moves to extract commercial value from the network which he felt would not be of benefit to the users. In a letter to potential investors he states that he did not originally want Facebook to be a company because “it was built to accomplish a social mission — to make the world more open and connected”.
But as a public company the young engineer is going to face considerable pressure to justify its massive valuation. That will involve growing revenues significantly from the $3.7 billion achieved last year.
International expansion is one way Facebook could generate more revenues without compromising its founder’s principles. That would also be a positive development for its Dublin operation which is Facebook’s international headquarters and now employs more than 200 staff.
Facebook is not currently available in the largest internet market in the world – China. The company admits there is no guarantee that it will find a way of operating in China that is acceptable to both it and the local authorities. Whether it is willing to compromise on its principles of openness and engage in censorship at the behest of the Chinese government will be a huge test of the public Facebook.
Financial analysts have questioned whether the company is really worth such a massive multiple of its net earnings (profits), which were $1 billion last year. Facebook will be valued at 75 to 100 times its earnings while on average the US stock market trades at 12 times earnings. There are clear echoes of the original dotcom boom. Mr Zuckerberg has successfully negotiated the challenges of managing the fastest growing website in history. He will now have to do so in public. That presents a very different set of challenges.