Dispatches from the Digital Revolution
I could have told you not to buy shares in Facebook.
In all honesty, I only have layman’s knowledge of the stock market. I’m no finance professional. But what I do know is that while Facebook is currently King of the Mountain, there’s no guarantee that it will stay there forever. As one of my professors has frequently said, Facebook is only still around because nobody else has done it better. And I think he’s right.
And besides that, I’ve never really felt that Facebook was much of a moneymaking machine. Google (whose stock peak in the last twelve months was over $668)? Yes. Apple (peak of over $636 per share in the last year)? Yes. Even LinkedIn is on the rise, hitting its twelve-month highest price per share in early May at over $117. But Facebook has never seemed terribly savvy in its monetization. According to an article in the Boston Phoenix (I know, not the best source, but it’s what I had available during my commute), Facebook only sees about $5.11 in revenue per user—compared to $30 per user generated by Google.
In the long run, as one financial predictor puts it, the consequences of this fiasco will be to lower the IPO price of other technology companies planning to go public. (The price of these offerings is set, as this Forbes article explains, through a careful look at accounting and a whole lot of guesswork.) Interestingly, I’ve seen several articles referencing Facebook shares as a “trade”—not as an investment.
And so far, that seems to be playing out. The people winning in this situation are short-sellers (and while I can’t explain that to you, this article can)—folks who are selling for the short term, not investing for the long haul. In addition, this New Yorker article points out that Facebook, like many other technology companies (the leader of which is Google), is allowing less stock investor participation in the company by using a two-class stock structure, with one class holding almost all voting power, and a second class, with basically no voting privileges, available for trade on the stock market. It seems Facebook is treating its investors the same way it treats its online users: not as partners in an exciting and unique experience, but as pawns in the game of success.
That said, I’m an avid Facebook user. Right now, there’s nowhere else that I can keep in touch with so many friends and family members. And as much as I’m not crazy about the constant updates and that annoying pop-out photo viewer thing (which prevents me from browsing photos while instant messaging…first-world problems), it is still my preference of the social networking world.
(Sorry, LinkedIn and Twitter. Google+, you know you hardly had a chance.)
What do you think? Is the ruckus raised by this IPO worth it, or is Facebook just taking advantage of folks throwing money around? Was this an honest miscalculation? And what does the future look like for the social nework?
Note: For those who don’t know what an IPO is, the letter stand for “initial public offering.” An IPO happens when a company decides to go public and sell “shares”—traditionally, pieces of ownership in the company—to investors. You can learn more about it here.