Earlier this week, I wrote that I thought that Facebook has overestimated it’s worth and that by the end of the second day of trading it was becoming clear that the social network was not worth the $100bn+ that it’s floatation share price of $38 assumed it was.
Then yesterday, the Wall Street drama took a new turn, which frankly I am not surprised about – as reports flooded in stating that Investors are now suing Mark Zuckerberg, Facebook and the banks that facilitated the floatation over the disclosure of key financial information which would be used in making investment decisions.
According to The Economist it’s ironic that even though the value of Facebook shares has actually dropped by 18.5%, they’re still “trading at the upper end of the $28 to $35 price range it initially set for them”. Personally, as I mentioned earlier this week still think that the share price was too high to begin with.
An analysis of Facebook’s revenue model (show on Channel 4 news) states that the value of the company, based on it’s opening share prices is 156 times it’s profit of $668m and if you compare this to General Motors – company value is only 3.5 times the profit.
The problem with Facebook is that it doesn’t actually produce anything. It offers a free service to its users and generates operating revenue through advertising. I think it should really end their. Facebook, in it’s inception was a niche product – you could only be a member if you had a student email address from a specific university – this then rolled out – But I’ve seen silly things, like a dedicated facebook button on a phone, and some can argue that the company, and some may argue, Mark Zuckerberg, have become bigger than the company itself.
Many social networks have come and gone – Myspace, Friends Reunited, Bebo to name but a few and there are vary reasons for this – but centrally one truth remains – A social networks is only as strong as the number of users on it, however that doesn’t necessarily mean that the more members it has the more valuable it is. One report stated that Facebook users don’t click on adverts. I know I’ve click on a few though, from time to time – But I’ve never bought a product as a direct result of a Facebook advert.
Because people spend so much time on Facebook, there is an unquestionable point to me made about the potential for advertising exposure. For weeks I saw an advert for “For Goodness Shakes Nectar” a drink used by athletes. I eventually bought some – but I never clicked on the facebook advert, so it can’t be measured.
On Google, it’s easier to implement a “pay-per-click” advertising model, but this doesn’t seem to work for facebook – because at the their current valuation, they should be making cash left-right and centre.
When a user clicks on an advert, I would argue they were actively engaging with the advert itself, however with Facebook, the adverts are more passive – perhaps companies should “pay-per-like”, this way the user is inviting the company to advertise on their timeline and this can be considered more of an active engagement advert.
and finallly… Mobile Devices
The Facebook iPhone app is terrible. It crashed all the the time and doesn’t load data fully. Frankly, they need to fix this. Now they have the investment, I hope they do…