Facebook IPO: Boom or bubble?
Is Facebook hugely overvalued or a solid business with some reliable growth ahead of it? A great deal of both. The reason the Facebook flotation is different from yourfunny.co.ck, or anything conceived by a Shoreditch "leisure startup", is that it already has a large and devoted audience. When you can reliably draw a large …
This topic is closed for new posts.
Focus... on what?
It's no surprise that facebook is really proud of being a name fascist, forcing everyone into the mold of their "acceptable name" algorithm. That is not quite the same as having people's real names. And it doesn't follow at all that this makes their user database more useful to advertisers. This is more after-the-fact justification of initial knee-jerkery than reason.
Why? Because with several hundred million accounts (which may or may not translate to roughly as much real people) you actually can do that profiling thing without needing so much as a name. In fact, you have a big enough base to pick subsets and do impromptu controlled advertising experiments. Even if they're never going to be usable for scientific papers, they may well be usable for the advertisers. And that is what they're after.
Another reason for them to insist on your real name is to try and enforce exactly one account per user. Apart from being socially undesirable for the users, seeing that the real work is in maintaining the account, it should be automatically self-limiting and wouldn't skew the above experimenting overmuch, if done carefully enough. Which person is behind the account isn't as relevant as contextuality of adverts is. See the problem here?
Thus, in that field too teh zuck is not willingly part of improving the world of social networking. More to the point, he actually hasn't a clue how to a) monetise the data he's sitting on, nevermind b) do it in a way that doesn't cause him no ends of judicial (and perhaps even legislative) grief, as pointed out above.
Bubble bubble toil and trouble
(With apologies to WS)
Interesting quote from Richard Nunn at Charles Stanley Securities
"Facebook is worth the expected $80-$100bn valuation because we believe it is and will be the dominant social media platform globally"
Translation - "A grossly overvalued stock = lots of trades = lots of commissions - YAY!"
Never take investment advice from a man who profits when you lose money.
You can check out any time you like . .
. . . . but you can never leave.
I smell another bubble
Facebook's current advertising "system" is a complete joke which must have been programmed in an afternoon after a lunch of a few JaegerM+RB's and mutual high-fives.
If I write "I think Liam Gallagher is a complete twat" in my status I am bombarded with ads featuring Liam Gallagher. Yes, I am an avid football fan, but only of <ONE> team and I'd rather stick pins in my eyes than buying anything with an Arsechesterpool City Hotspurs badge on it.
If you are in advertising and wasting your money on this crap then you are an idiot. If this is Facebook's current understanding of the way advertising works then what are they going to dream up in the future that's any use?
At least with Google there is a bit of like, er, y'know "context" and stuff.
Adverts?
What the fuck are adverts? I don't see any adverts.
They have ads?
OK. I found out a while back. But I have never actually seen one in any of my accounts.
Re: Adverts?
Well, that's always been my point too - I've never really seen any other than a few on the web version at the side, though they are coming to a newsfeed near you apparently.
But they are kinda there subtly - if you like stuff, that stuff advertises itself to you, like Top Gear does to me. Though, don't see how that makes them any money, then again, I;ve never really understood how they make all that much money, certainly to justify such an obsurb valuation.
The people directory
I don't think that the collapse of MySpace is indication of the likelihood of the same thing happening to Facebook. The collapse of MySpace was a result of the fact that both companies provide a useful service - an online "people directory" - that will inevitably be dominated by the provider that builds an unassailable momentum in terms of user numbers.
I suspect that most Facebook users are like me. They occasionally use it to look up or contact someone whose contact details they don't have. That is a very useful service.
Friends Reunited
Facebook is the very definition of a financial bubble. It is overpriced, has tiny margins and its value is based on the expectation of continuing rapid future growth. I can see the share offering being a resounding success for six months and then a lot of investors realising they have bought vouchers for magic beans.
The internet is littered with failed social networks and even if Facebook is not one of them it is almost inconceivable that it will ever be producing enough profit to justify a £100bn capitalisation.
Softly, softly .......... catchee millions of dumb animals?
amanfromMars, …… said in reply to the tale on http://www.wired.com/epicenter/2012/02/facebook-ipo-2/
Isn't Facebook just a metadatamining operation into which one pours personal secrets and latent desires for others to sell on and server back to you, with a price tag attached to your dreams? Or are they supplied free at no personal future cost, and is that what makes it a valuable float/stock ...... for a new kind of sociably responsible capitalism?
It is also a great spying program too, of course, delivering all sorts of high leveraging positions with the private information it makes available.
Ask yourself ...
... if Bain Capital could make Billions on the FB ash heap. Um, no. It's like an investment in 1950's Phone Books, lousy fuel, inedible and hooking up may not be at all what you imagined.
An IPO can be the beginning of the end...
When Google went public, as the article touches on, they still had a long way to go and quite an obvious path forward. The IPO gave them the cash to do that.
With FaceBook, where do they go from here ? Yes, they are collecting lots of information, but what can they do with that apart from sell it ? The comparison with a TV channel is very apt - they are a platform that provides content to an audience and sells access to that audience to their content providers.
In many ways, FaceBook are the new AOL. And look what happened to them after they went public.
Zucker said he has no interest in running a public company, yet here he is going public. Why ?
One market analyst quite recently observed that for a business considering an IPO at some point in the future, there comes a point where the IPO has to happen NOW in order to make the most money out of the IPO. Once they realise that things are at best as good as they are going to get and at worst downhill from here-on-out, you HAVE to IPO at that point because if you IPO later on you won't make as much money.
I'm pretty damned sure this is what we're seeing with FaceBook.
Mines the one with the NEXT big thing in the pocket.
@ Jolyon Smith
I agree that FB are a lot like AOL. But members of AOL paid a fee every month and when high speed connections and cheaper prices came along, their members left in droves.
FB doesn't face that situation. AOL lived on the revenues from their members and it was obvious to everyone when they were gone. FB only have to keep the number of active members to appear to be expanding and not collapsing.
One reason Zuckerman is taking FB public so that he can sell some of his 500,000,000 shares in the stock market and not have to find buyers on a secondary exchange. Maybe he sees the end of the joy ride?
In a sense the FB IPO is like a canary in the coal mine. If it doesn't do well, it doesn't bode well for the economy in 2012 and for Obama in November.
I'm a little skeptical
I know how I use facebook. Basically, I might be online for hours at a time, but I am not checking out products/reviews/services that are advertised. Basically I play one FB game and I come by every 20-30 minutes to do one more thing in the game, and then I come back again when it is time to do the next thing. My various friends seem to do the same a lot.
Now, I think that this model works well if you are advertising social services like dating services or such through FB, but I am not sure about "hard goods" or financial/consumer services.
So I am not going to get carried away searching out Facebook shares for my retirement account or something like that.
Disaster Averted
"The other is from - and please ensure that you're sitting down before reading this - in-app purchases made in virtual currencies."
I was going to joke about The Reg employing witches over this and wanting to return to The Daily Mail for its journalistic integrity over this, but when I did the math, I realized a few lols wasn't enough to justify the large risk of that much bollocks in one post collapsing and creating a BOHSON* of such magnitude and horror that it would destroy the world. So I won't. You're welcome.
*Black Ominous Hole Stuffed Overflowing with Nonsense
LocalGroup... how they make their money isn't the point...
FaceBook is popular because... it's popular. Once a significant body of it's community move on to The Next Big Thing then the whole thing collapses in on itself.
And this is already starting to happen, most crucially for FB among it's prime demographic - teens and young adults. So yes, while they can still massage the numbers to give the impression of growth, now would be a good time to go to the market, before the market realises that FB's time in the spotlight is starting to - if not pass - at least peak.
FB's infrastructure costs must be phenomenal... when user numbers start to fall (and they will) the ad revenue will dry up at a much faster rate. The fees from virtual currencies will similarly dry up once the providers of those games establish enough of a presence to create their own economic communities separate from the FB platform. You may have read that Zynga have already pulled the plug on a number of "FaceBook" games, and are now starting to create their own eco-system separate to the FB one that gave them such an important "leg-up" to get started.
There will come a point when FB will be forced to consider subscription fees for it's users just to cover it's costs, and once that happens a new FaceBook will spring up to start the cycle all over again.
Game Over
(and by that time Google+ will be very well placed to pick up the pieces)
The point being, that those standing to make most from an IPO will know all of this already and perhaps even have had a red letter date circled in their calendar for when this all has to happen for some time already.
It's time for them to cash out.
The only question for you, as a potential investor, is do you want to provide some of the glittery lining for Zuckerberg's Golden Parachute ?
Your observations are astute
"There will come a point when FB will be forced to consider subscription fees for it's users..."
Or they will have sold themselves to Time Warner by then.
Zuckerberg has a whiff of a 21st century Augustus Melmotte about him, no? :-)
Black Adder & Pedantry afoot.
Baldrick conceived the cunning plans, Black Adder just came up with plans.
Revenues and profits
Some interesting things about Facebook that are missing from the article and confound the vast majority of snide comments here:
1) Facebook has nearly double the profits of Amazon in 2011
2) Facebook revenue and profit are both about 1/10th that of Google
3) Facebook has more profit than Google had revenue when they went public.
Raw data in the S-1 filing. Comparison with Amazon and Google courtesy of MG Siegler (http://parislemon.com/post/16888592105/fathoming-facebook)
Now I can't begin to understand where this money comes from but unless they're lying on their S-1, comes it does. You can speculate all you like about user engagement numbers but cash is cash.
Pump and Dump Scam...
...of a business with a flawed profit model and at the end of its shelf life.
IPv6 will kill Facebook
Once we all have static IPs all it will take is for one decent social networking application to slaughter Facebook. Their IPO suggests this will take 80 years to happen; I suspect rather fewer.
From my experience FB is in decline already
Far too risky an investment in my eyes, at least long term. Facebook is a fad based on soley on a large userbase that actually use it. Userbases are notriously fickle. Once a large userbase doesn't use it because their newsfeed is diluted heavily with ads and spam from all the shite you once 'liked' but can never seem to work out how to 'unlike', or worse, the spam from all your sad friends who play the likes of farmville, FB is a dead duck.
I have already noticed an increasing number of friends dropping off from FB - not as in closed their account, but simply not using it anywhere near as much as they did a year or two ago.
And that is true of me too, since my friends don't use it so much these days I am losing interest because my wall is full of friends' usage on Shazam and shite like that or, for example, an update from TopGear that I'm not really intrested in but get because I 'like' Top Gear. Soon I'm told that my newsfeed will also include 'targetted' Ads (though effectively it does already) at which point I doubt I'll be using it much at all.
Facebook should take note of this, as should any potential investor.
Bebo???
One thing the "internet" age has taught me (been using it from the Gopher days :) ) is that it is unpredictable - all the next generation has to do is choose something/someone else and Facebook is in trouble (and guess what, will probably happen.... - remember AltaVista, the no 1 search engine).
All Zuckerberg has to do
is keep FB alive long enough to sell enough of his 700,000,000 shares (the 588,000,000 Class B shares and the 120,000,000 fully vested options he owns.) If he keeps FB afloat for a year or two after going public, he should get a couple of billion at the minimum out of his shares into legal tender.
He's got FB set up so that he still retains control of it after selling a lot of his stock. His Class B shares have ten times the voting power of the Class A shares which are ones that will be exchange traded. When he sells his Class B shares, he can convert and sell them as Class A shares.
A little paranoid about losing control of FB, Zuck?
This topic is closed for new posts.
