Facebook IPO: The hype and the value
It’s official, Facebook has finally filed for a public stock offering. But does the company’s revenue-generating model justify its expected valuation of $100 billion? Will anybody aside from the investment bankers and industry insiders benefit from the listing? KEVIN BLOOM considers the question.
In April 2010, an episode of South Park aired in the US and UK that viewers rated as one of the funniest in years. The episode was titled “You have ‘0’ friends,” and it followed the quest of Stan, who said he didn’t “want to be like a third-grader who’s been on Facebook six months and has zero friends.” So Kyle, Kenny and Cartman set up a profile for him, which soon became a huge success—leading in turn to the awkward and inevitable moment where Stan refused to friend Kyle. There were of course other scenes in the episode that portrayed how Facebook has come to dominate our social lives, but maybe none as incisive as the exchange between Stan and his father Randy:
“Stan, your grandma sent you a poke and you didn’t poke her back.”
“But dad, I don’t want to.”
“Stan, poke your grandma!”
On Wednesday, 1 February 2012, Facebook filed for a public stock offering that is set to catapult this level of familial incursion all the way to a valuation of $100 billion. The engine that’s supposed to drive a run on the shares is the company’s vast storehouse of personal data: the intricate habits of its users—currently 800 million and counting—that the company has been gathering for the last seven years. Stan’s personal interests, his contact information, his relationship status, the links he shares, and most of all his “like pages,” are the items viewed by advertisers as the buyable clues to his personality. Multiply this knowledge by the number it takes to get to more than ten percent of the total human population, and you have the most significant IPO of the new millennium.
Noted the New York Times: “Barring an unforeseen event, the Internet giant plans to list a preliminary fund-raising goal of $5 billion, according to people briefed on the matter, smaller than some previous estimates of the offering. But it is essentially a placeholder, a starting point used by companies to generate interest among potential investors. The eventual offering is expected to be the largest for an Internet company, bigger than Google’s in 2004 or Netscape’s nearly a decade before that. Trading of the stock is expected to begin by late May, the people briefed on the matter said.”
How does the above account for the fact that Facebook has a lower click-through rate, on average, than its major competitors? It’s tough to say, but the stats are available for all to view. According to articles published in the last few years across several leading publications, Google users are twice as likely to click on the first advert for a search than Facebook users are likely to click on any advert, while MySpace’s click-through rate is two-and-a-half times higher than Mark Zuckerberg’s brainchild.
If anything, the disparity may have something to do with the Facebook IPO’s hype. Over the last few months, Wall Street’s leading investment banks have reportedly been outdoing themselves in their aggressive attempts to bag the whale, and nothing determines a new share’s allure like the power of the firms going after it. Facebook has apparently signed the biggest names in the business, with Morgan Stanley set to serve as the chief underwriter, and JP Morgan and Goldman Sachs as co-leads. Bank of America, Merrill Lynch and Barclays are also part of the deal.
Which just about covers every major player that didn’t sink in the 2008 financial crisis. And it’s these players, together with the industry insiders who’ve been promised preferential treatment, who’ll no doubt reap the real rewards from the listing. Every other investor is going to have to pray that Facebook jacks up its revenue-generating capacity.
As SiliconAngle reported on 30 January: “With rumours of an IPO coming as early as this week, Facebook is, for once, making headlines for something other than mandatory profile updates and privacy concerns. While there’s fear an IPO could ruin Facebook’s ‘startup’ appeal and slow down innovation, an initial public offering could raise enough capital for Facebook to more aggressively grow its verticals. Two areas of importance for Facebook moving forward include mobile and social television. It’s part of a larger ‘connected device’ trend that’s delivering content through more channels, and as this space expands, Facebook will need to monetise the social aspects of these channels as well.”
Meaning, the IPO is likely to make the social networking giant more ubiquitous than even the South Park creators could have envisaged. DM
- “Personal Data’s Value? Facebook Is Set to Find Out,” in the NYTimes;
- “Facebook IPO: Bubble or Bargain? Success Hinges on Mobile, TV,” in SiliconAngle.
Photo: Mark Zuckerberg (Reuters)