Facebook IPO case study and Stock history
Why buying Facebook stock might have been a bad idea
The future of networking technology is mobile apps and ironically thats where Facebook falls flat.Right from bug issues to monetizing its mobile platform ,the one aspect of the social network that needs to be perfect is its downfall.Just before the launch of the IPO, there was a mention the SEC filing about it being unsuccessful in implementing a revenue model for its mobile users.With the exponential growth of smartphone users over the last 2 years,and the continuing trend of increased logins from the mobile app,its clear that Facebook need to quickly find a way to tap into that market and gain advertising revenue.
The biggest clue to show us how important the mobile platform is to FB and how much of a threat it perceives from other social sharing apps, is its hurried acquisition of Instagram for a ridiculous $1 bn.Im not sure how smart or foolish it was to tell the world about its inability to score from the FB app,but this is definitely going to be one of the primary reasons in future for the decline in the user trend.
The news was just in at the time i wrote this post.A class action lawsuit was filed against the major underwriters,most noticeably Morgan Stanley,and the initial investors and stakeholders.The gigantic stock drop of more than 20% in just the first 3 days of trade are giving shareholders nightmares.Since the news of this lawsuit is just fresh and the Facebook stock still being live traded right now,its possible that at the end of today’s close it could drop even lower.The suit is based on the accusation that the underwriters gave altered projections of future growth prospects.This primarily deals with the apparent shady disclosure that the Facebook app wasn’t monetized sufficiently and as a reason,a shift in the number of mobile users had led to a significant drop in earnings.
FALL FROM GRACE
On a publicly traded market,words speak louder than numbers. Events, rumors, perception and simple speculation can radically alter the fate of any security.Even before its much hyped public début, trade gurus were pessimistic about its performance in the long run,quick intraday trades added fuel to the volatility and Morgan Stanley stepped in as early as the second day to bail out the stock before the days close.This is the fate of the second biggest website in the world, a social phenomenon with 200 million(whew!) daily users.Just goes to show even the most successful private enterprises fumble on the open stage.
I know its unfair to compare Facebook and Google in any way.One of the fundamental reasons a stock does well or continues to perform well over a period of time is future growth prospects and re invention of a product that will bring in fresh revenue every financial year.People want to push a young company with crazy money making ideas,not a company that has been at its best.Facebook has been around for 8 years and hasn’t shown the kind of advertising revenue that Google perfected.
The only future monetization method for FB, is through its mobile app which it sadly cant figure out.I read an article on Forbes,in which the author spoke of the ill effects of investing in a company in its zenith.The sky is NOT the limit for FB,its already reached as far as it can get,and now is running out of steam.
We’ve seen the disastrous performance of other tech IPOs in the last 18 months, just like everyone predicted,FB too has been trading under the IPO price since the last 4 days.For the sake of millions of retail investors,lets hope they stop losing money.
Did the Spacex launch affect the Facebook IPO
The strange connection that Spaceex and Facebook share are Elon Musk and Peter Thiel,both co founders of Paypal,who took their fortunes and went very separate ways-Thiel is a major shareholder in Facebook while Musk is the CEO of Spacex.The funny difference is,$16 bn was rasied by facebook to make its investors richer,and Spacex got 10times less- $1.6bn for a series of 12 launches that will carry cargo to the space station.Whats historic about this launch is that its the first time a privately funded enterprise has been comissioned by NASA,and i hope more money will be dumped into space than on IPOS.
Even though the FB IPO has been the toast of the town for the past week,its less than perfect start gave way to Spacex launch,and to steal the media thunder.
Is the future of facebook a failure,post ipo?
How does Facebook compare with other young companies that have poor revenue models backed by big investors?FB has proven to us that this is how far it can get,it doesnt show any exponential growth or future plans to tap into 900 million users it has registered.There is evidence to show that last years haul of $3.7 bn will not be beaten,infact this quarters earnings have already declined,compared to the same time last year.
A question id like to ask new investors, who were lucky to got hold of some stock,is-how lucky do you feel? reports suggest a lackluster first day show with a surge of only 23 cents at close.What would be really unfortunate was if it falls below the ipo price over the next few weeks,just like the miserable performance of other internet debutants of 2011 that all met with the same fate.My biggest concern is,where does FB go from here, how bigger can it get? the numbers speak for themself,growth has already declined in the number of users,advertisers are backing out die to extremely low click through rates,and competition from other social networks is on the rise.
Something that alot of people didn’t know was how inaccurate that 900 million- user figure is.One of Zynga’s popular games on FB is Yoville.I’ve been on this game since late 2008 and have met many users who create as many as 20 FB accounts to collect more coins and points in the game.Even if approximately 10 million active users play this game,and if 1/5 th of them make 10 extra accounts,that 20 million extra accounts.Then there are other players who make an extra account to add only friends from social games.
Out of the 240 million users that play zynga games on FB,even if 1/10th made an extra account, that’s another 48 million accounts.Not counting FAKE accounts that impersonate celebrities and underage (<13years) users that use Facebook.The 900 million number could be extremely inflated,and without primary markets like India,Russia and Brazil tapped to the max, getting more users will be almost impossible.Even China has shut the door on FB and runs its own mammoth social network called Qzone (QQ),so as far as further penetration is concerned,there’s not much left of the civilized population,on Earth at least,unless Zuckerberg plans to socially connect into other realms of the cosmos.
The only way to check the credibility of the stock, is to see how fast investors try to cash out and run.Even with the 90 day flipping threshold in place by the brokerage houses,this will be the test time.After this period, most of the primary investors could start offloading sections of their stakes and create a frenzy that could spirally slide the stock.
The only thing certain here is that the future of Facebook is uncertain.This was the big dream,the big plan.Some call the stock market a Ponzi scheme.This is the climax of the 8 year wait, to tap into the public market and bloat your investment,its the end dream of every corporation.Facebook has reached there, now what?
The magic money of Instagram
The hottest acquisition of Silicon Valley in the last month has been that of Instagram, a consumer internet app that lets you share photos over social networks.When Facebook acquired it for approximately 1 billion few weeks ago,it made a few of us scratch our heads,but we bow down to the the brains behind Facebooks’ financial operations,they obviously have plans to possibly monetize the app in some way in the future.
Through 3 rounds of funding,starting with a seed round followed by a series A and a suspected series B round, a total of $57m in capital was raised by some of the biggest startup investors of Silicon Valley including Seqioua,Benchmark,Baseline and Andreeson Horowitz.After this short spurt of funding, Instagram attained a valuation of $500m.
Funny thing, Facebook paid double of this to get its paws on it. The news in the valley was that Kevin Systrom led Instagram learnt of Zucks’ desperation and initially quoted an asking price of $2bn.
What we learnt from Kevin Systrom and Silicon Valley
1.To become a silicon valley billionaire, you either go to an Ivy League College or drop out from it.
2.Silicon valley dot coms,raise more money than they need, spend more than they need to,before earning a penny.
3.You need to work at Google in order to be acquired by Facebook.
4.Whatever Marc Andreeson touches,turns to a billion dollars.
5.In silicon Valley,if you aren’t a billionaire by the time you’re 30, you never will be.
6.The new dotcom is the app.
7.If you want to be be a millionaire in Silicon Valley,be a Jew, get funded by a Jew,work for a Jew or get bought by a Jew.
Questions we would like to ask about Instagram and Facebook
1.is any business that hasn’t made even $1 in sales worth buying for $1bn?
2.how scared are you Mark ? of other potential social sharing platforms/apps that reach 1 million users?
3.how stupid or smart a move is it before your first public issue?
4.Do you actually think future public investors will be impressed by this buyout?
5.how tough is setting up a revenue model compared to getting users to buy your product?
6.Did instagram sell because it dint have a workable revenue model?
7.What will Facebook do with Instagram? Integrate it, or nurture it separately?
8.If it wasn’t bought by Facebook,would it have the potential to reach 500 million users?
Everyone knows that Facebook is synonymous with Mark Zuckerberg and his 3 other co founders that have grabbed the medias fancy.They were the ones who drove the website from its infancy,way back in college.Now 8 years down the line,Facebook is coming of age, and is on the verge of becoming a Public company.Here are some of the most important facebook employees that are going to make that happen.You don’t read about them in the papers too much,but they are the driving force behind Facebook in 2012.
Theodore (Ted) Ullyot, 45 is the VP and General Counsel at Facebook,former Vice President of AOL Time Warner.Ted deals with all the legal aspects of the corporation and Pre IPO filing with the SEC.
Sheryl Sandberg, 42 is the Chief Operating Officer (COO),former sales operations manager at Google.One of the most powerful women in business Sheryl is also on the Board of Directors of a fortune 500 company.
David Ebersman, 42 is the Chief Financial Officer (CFO) and was the former CFO at Genetech.He is one of the leading men behind the current Facebok IPO.
Mike Scroepfer, 37 is the Vice President of Engineering,former VP at Mozilla who oversaw the Firefox Browser.The Stanford University Alma Mater also was the Chief Architect at CenterRun which he co founded.
Facebook SEC S1 form registration details
x number of Class A common stocks of total value $5,000,000,000.(5 billion)
Registration fee amount $573,000
Proposed ticker name “FB” either on NASDAQ/NYSE
Class A common stocks represents 1 vote/share whereas Class B common stock represents 10 votes/share.(not offered in IPO)
3 Underwriters appointed Morgan Stanley,JP Morgan and Goldman Sachs.The proceeds of sale of stock will not go to Facebook bu future stockholders.
After the IPO,Mark Zuckerberg will still control majority x%voting power of outstanding stock
As of Dec 31 2011, 117 million shares of Class A common stock and 1.75 billionshares of Class B common stock outstanding
Revenue of Facebook in 2011 $3.711 billion and net income $1 billion
Zynga contributes 12 % to annual revenue by giving a commission on sales of virtual goods.
Facebook SEC S1 form registration details
Anual growth slowing down,158% in2010 to 88% in 2011
Employees increased from 2127 in 2010 to 3200 in 2011
Mark Zuckerbergs sale of stock in the IPO will be used to pay taxes that he wil incur when he buys 120,000,000 (120mn) shares of class B stock
Base Salary of Mark Zuckerberg (CEO)in 2011-$483,000+220,500(Bonus)+783,000(Other)=Total 1.48 mn
Base Salary of Sheryl Sandberg (COO)in 2011-$295,000+86,133(bonus)
Base Salary of Randi Zuckerberg (till aug 2011)-$128,750+139,578(bonus)+89,536(other)