So the last few days have been very interesting for the people at Facebook. After months of speculation, shares in the popular social networking site went on sale for $38 which valued the company at over $100bn, and after an initial burst of enthusasm in the market, the share price levelled out, and on Monday, after it’s second day of trading ended -4.20 and it seems to now be floating around the $34.
I’m a regular user of facebook. For a while I was going to delete my account, but I have hundreds of photos stored on my profile and frankly, I can’t be bothered to download them one at a time – so for me, facebook has become less of a site which I visit from time to time, to an every day appliance, like my TV or my fridge. I hate to admit it, but I have seen myself become more and more reliant on it as I’ve used it more and more people who I know begin to use it.
I guess Facebook has made me lazy – why have a conversation with anyone when you can simply add a status update and suddenly you’re having a conversation with everyone.
So, is this tool worth over a hundred billion dollars?
I can’t see how facebook can increase it’s revenue model – yes, it’s making money through advertising and taking 30% from in-app purchases from developers such as Zynga who have developed addictive online games such as CityVille an CastleVille. But Zynga is moving over to its own platform and I wouldn’t be surprised if they soon released their own version of Steam and did away with Facebook and FB would loose that revenue stream, after all, Zynga has it’s own share price to worry about.
I have seen several documentaries recently, and with all the publicity surround the IPO, there have been plenty knocking about, about the business model that encompasses Facebook and their COO, a lovely lady called Sheryl Sandberg, who Zuckerberg poached from Google has applied a philosophy to the mindset of facebook user, in comparison to a Google user – A google user is actively seeking information and a Facebook user is passively seeking information – so the adverts are targeted slightly differently; the problem is do people actually click on facebook adverts?
Well, Yes they do.
Last year Facebook generated over $1bn from advertising, which is pretty impressive for for the 900m users FB are making around $5 from each one. It’s also interesting to note that of all the social networks which have opted for public floatation, only LinkedIn has managed to increase it’s share price – but then it also targets a very different market and can legitimately charge for additional services. Facebook is free, and needs to make it’s money somewhere.
I think the share price was too high Mark Zuckerberg should never have gone in at $38 a share. I think that ego has grossly overestimated the value of the company. I don’t think there is going to be any new social networks coming along anytime soon that will compete – But who’s to say that it won’t become the next MySpace?
I would have gone in at half the amount and allowed the company to grow – this way if the share price had settled at $34 the floatation would have been considered a success, as it stands Zuckerberg’s personal fortune has been stripped of a billion dollars in 1 day.