Nasdaq's “technical error” and lawsuits aside, the failure of Facebook's stock to “pop” has placed the future of the company and the strength of its business model under more scrutiny than ever.
In a post on the MIT Technology Review, tech commentator Michael Wolff asserted that Facebook is “not only on course to go bust, but will take the rest of the ad-supported Web with it”.
According to Wolff, the idea of the Web and its targeted advertising potential being more profitable than traditional advertising mediums is one of the great business fallacies of our time.
“As Facebook gluts an already glutted market, the fallacy of the Web, as a profitable ad medium, can no longer be overlooked. The crash will come. And Facebook - that putative transformer of worlds, which is, in reality, only an ad-driven site - will fall with everybody else,” writes Wolff.
While it seems the most accurate view of Facebook's financials was circulated among only the lead underwriters and select investors (hence the regulatory investigation and lawsuits), Facebook's difficulties in monetising its growing mobile user base were widely publicised in the run-up to the IPO. So too were the weaknesses of the social network's targeted advertising model.
However, World Wide Worx MD Arthur Goldstuck says Facebook has only begun to explore advertising models. “It is generating serious revenue, and will probably find ways to boost that revenue substantially in the coming years. Of course, Zuckerberg's ego could always act as a brake on the company's progress, but chances are that he also wants to see the business boom.”
Goldstuck says linking “a comedy of listing errors” to the likelihood of Facebook as a company collapsing, flies in the face of logic. “The company has raised the $10 billion it wanted from the listing, and is not going to disappear very fast.”
According to Goldstuck, the disappointing IPO listing has greater implications for the way listings of red-hot tech stocks are handled rather than for the future of such companies themselves.
“Facebook will soon have a billion registered customers. That is the number that will matter, rather than a share price that is subject to the whims of an emotional and often short-sighted market,” says Goldstuck.
Sheer greed
Referring to media reports that have bashed Facebook and its IPO as a bust, Goldstuck says the media coverage of the listing is a “classic example of the micro-thinking American analysts' exhibit when they look at share performance, market share, and the like”.
“The truth is Facebook should never have listed at $38. That was sheer greed at work, premised on the fact that there was massive appetite for the share when the original suggestion of coming on at around $28 was suddenly upped to around $34,” says Goldstuck.
“A graph of the growth of Wall Street greed leading up to the listing would be a far better indicator of what went wrong than a graph of the share price performance. When the share listed, the sponsors of the listing had to support it with massive buying every time it came near the $38 floor. That made it inevitable the share would dip substantially below $38 on the Monday following the listing.”
Goldstuck believes $28 per share would be more realistic pricing since for much of the run-up to the listing, it was positioned at that level. “This all suggests that Facebook as a company has not flopped, but rather that Wall Street stuffed up yet again.”
“The fact remains that Facebook's market cap is now around $85-$90 billion, which most non-believers still believe is an absurd valuation for a company built on turning its users into a commodity,” says Goldstuck, adding that the losers were those who bought stock on the day of the listing.
“But if they didn't understand that they were in fact gambling, I've got a great bridge from London to sell them.”
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