Here I Stand

Here I Stand

Friday, May 18, 2012

Facebook IPO

Facebook IPO


So if you pay attention to financial news – or really the news at all – there has been one major theme that has dominated the headlines this last week: the Facebook IPO. The already fabulously wealthy founders of the wildly popular social media site are set to become multi-billionaires. And why shouldn't they? Mark Zuckerberg and crew have quite literally changed the world as we know it. Where Myspace and Friendster came before, Facebook has united what was once a fringe, hipster culture, into not only the mainstream, but into everyday life. I don't know anyone who doesn't check their Facebook page at least a few times a day. Most do it on their phone when they have 30 seconds of downtime. It has millions of users, and is probably the single most visited website on the internet. Think about it. Everyone has their own preference for news sites, movie sites, professional sites, etc. and this divides the audience. Facebook, however, is a global hegemon and not just in the social media field, but in the world.


And as of today, you can own a piece of this hegemon. Facebook is having it's Initial Public Offering (or IPO) as I write this, and you too can capitalize on the all encompassing powerhouse that is the social network. This question is, though, would you want to? There is no question as to the brilliance of Zuckerberg's creation, and getting in on the ground level would have been a life changing experience. But has the media giant run its course? They were asking $38 a share for their IPO, and last I checked, they were selling for right at $41. This is an excellent margin for their first day of trading, and Zuckerberg should rightly be excited about this successful IPO, but honestly, I am not sure where Facebook will go from here.


Facebook is not Apple – who has stunned the world with constant innovation and new invention, shaping society with their ever changing line of products. Their stock price went from somewhere in the $30's to over $300 in just a few years. Facebook, for all the changes that they make to their layout, does not produce... well, anything. Yes, they provide an audience to market to, and have done an excellent job tailoring their ads to what their readers want to see, but have you ever clicked on a link? Sure, I read shares, and go through articles, and get really involved in my social networking from time to time, but I don't think I have ever bought something because I saw an ad on Facebook. Company's are starting to realize this. Earlier this week GM pulled all of its ads, saying that it just wasn't seeing results. I see facebook as being an excellent tool for niche brands and specific products – using their trageting dynamic to tailor the market that sees their ads to exactly the people they want to sell to, but national brands and general products? Not so much. Everyone knows about the Chevy Cruze... and sure, maybe someone who has pictures of trees and birds on their page would like to hear about the eco properties that the car offers, but they might not base a $30,000 decision on an ad in a margin.


Do Zuckerberg and the team at facebook have the knowledge and skill to change this? To morph into a marketing scheme with Pintrest level devotion to products? Yes, they certainly do! Will they do it? I don't know. I anticipate Facebook having an excellent IPO, maybe topping out as high as $45, but hitting a plateau almost immediately afterward. There will be a lucky few – typically the high end mutual funds and market managers who are invited to such high profile bids – who will make a killing off of Facebook, and with a shift in their innovation (not, by any means, a given) I could see it being a decent long term investment (5-10 years) and probably beating inflation in terms of appreciation, but if you can't buy it now, I wouldn't buy it next week. It's not going anywhere for a while, and there are better opportunities out there.