Facebook IPO, LOL
By: dgun
May 20th, 2012
8:21 pm
For months, and really longer than that, hype had been building in anticipation of the initial public offering for Facebook. Generally, it is a bad idea to jump in on a company in the IPO, especially for a high profile company like Facebook. Those privileged few who are allowed to buy shares pre-IPO normally do really well, but not so much this time.
Facebook priced their shares at $38 and the first public shares went for $42. The stock only got as high as $45 on Friday before finishing the day at $38, a very disappointing initial day of trading considering most of the estimates were all in the $50 plus range. (Some say it down right Zucked. Sorry, couldn't help it.)
I monitor CNBC quite a bit, as much for the entertainment value than anything else, and the reaction by the commentators and guests to the ho-hum results of the Facebook IPO was interesting. Right before the first public trades were made, which was suppose to have happened at 11:00 pm Eastern but was delayed a couple of times, one commentator tried to make the point that Facebook was undervalued at $38 per share. His reason being that since Facebook has nearly a billion users the share price puts each user's value in terms of ad dollars at $0.10 per user. I suspect that the value per user is likely less than that, considering many users have to be a net loss to Facebook.
Most online advertising is paid based on performance. The most common method is by click. A user may see an ad he or she is interested in and click the ad for more information. Online advertisers may also be paid commission. If you click an ad on Facebook and that leads to a sale, the company who ran the ad will give Facebook a little commission. But some companies also pay online advertising per impression. Every time Facebook serves certain ads, they earn a very small amount. This type of advertising is normally the least lucrative for online advertisers.
Monetizing online social media is very difficult. I have to be a net loss to Facebook because the system resources I use cost more than any ad dollars Facebook has collected from convincing me to click a link. I know this because I have never clicked on an ad served by Facebook. It is possible, I suppose, that Facebook has sold or will at some point sell my information to other advertisers, and in that case they may recoup some of their losses from their effort to sell me crap. How many “deadbeat” Facebook users are like me? I imagine there are many of us. (We should all friend each other.)
I also heard more than one analyst make comparisons to Google, Amazon, and Microsoft. There is no comparison to any of the three, in my opinion. With Google, their primary service is search. People not only search for general information but also search for things to buy, making search and “buying stuff” a natural couplet. Underlying Amazon's business model is real “things”. If you would like to buy something, you can buy that something from Amazon and they will ship the something to your house. As for Microsoft's IPO, they had a partnership with IBM that put MS-DOS and later Windows on all IBM and IBM compatible consumer PC's. Facebook? If someone wants to piddle away an hour on a virtual farm or talk to an old friend from school about the next class reunion, Facebook is the place to get that done. Turning that into money is the tricky part.
The last vestige of hope for those bullish on Facebook is mobile advertising. I suppose ignoring Facebook ads on your cell phone is very different from ignoring them on your desktop. This type of thinking is hilarious to me and we have experienced it since the inception of the web, whereas bad ideas become great ideas online. “But it's online!” Now I suppose the same logic is going to be applied to mobile devices. “But it is online AND you can see it on your cell phone!”
I can suffer through a lot of the crap on CNBC with a chuckle because I know “the deal”, so to speak, before I ever turn it on. But when one of the big Facebook investors started rambling about HTML 5, that was pretty much all I could stand. You want to see how much Facebook is really worth? Let Facebook charge their users a monthly fee.
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8 comments on "Facebook IPO, LOL"
May 20, 2012 at 8:36 pm
I agree that facebook isn't being valued properly. "But it's on the internet" is a reason for something to be less valuable, not more. There's too much competition because it's all online. Anybody can copy it and compete with you. Watch tv on tv and you get 20+ minutes of advertisement. Watch it online and hulu runs between 2:30-5:00. Hulu can't do more than that because they'll bleed users to bittorrent and netflicks.
However I disagree with your interpretation of advertisements, they don't work on a per-click basis. When's the last time you saw a tv commercial and then ran outside right then and bought it? Probably never, but that whopper sure looked tasty that one time. Advertisement works on a subconscious level. Trying to translate it's dollar value to clicks and purchases directly is counterproductive.
May 20, 2012 at 8:49 pm
However I disagree with your interpretation of advertisements, they don't work on a per-click basis
As to the traditional media ads versus online, the thing that strikes me is that there is no gray area with online ads. You can collect info on a user and target an ad that matches their interest very well, and whether or not that ad is effective is known almost for certain. With traditional advertising, you run an ad campaign and you can gauge the response afterwards. But was the amount you spent on the ads worth the additional business? With online ads you just know. What was the click through rate? Did it lead to a sale? How does that compare to what we spent, etc..
May 21, 2012 at 8:13 pm
And today the stock price was down to $34. Not a big deal if you have faith in the company and you're going to hold it for a while, but for those who were thinking they would get the $38 price and turn it into a quick $10-$12 per share profit ->
May 22, 2012 at 1:54 pm
I must be the only one around who is totally oblivious to internet advertising...it's like it's not even there. If those advertiser knew just how they're not reaching me....they wouldn't even bother.
May 22, 2012 at 2:23 pm
And today the stock price was down to $34. Not a big deal if you have faith in the company and you're going to hold it for a while, but for those who were thinking they would get the $38 price and turn it into a quick $10-$12 per share profit ->
May 22, 2012 at 7:17 pm
^ Yup, the last couple of weeks have been bad so that didn't help their situation, but this year has been a good year.
And in fairness to Facebook I haven't examined their financials, so I really don't know the "value" of Facebook.
May 30, 2012 at 5:52 am
But is that also partly because the stock markets been off on the down side?
I'm betting on this being a "hit". Granted, the company was way overvalued, but the timing of the GM decision doesn't really appear too accidental. It was perfectly timed to trash the IPO.
June 3, 2012 at 11:12 am
I agree. But wouldn't you say the IPO needed trashing? One set of privileged investors would cash in, but a whole lot more would lose.
The stock closed Friday at 27.72.