Last May 18, 2012, the much awaited initial public offering of the world’s most popular social networking site, Facebook, happened. Anticipation were at its highest, waiting how Facebook will fare in the stock market. After the smoke has cleared. Facebook was able to raised US$16 billion after the first day of trading. But analysts are saying Facebook stocks did not perform as expected.
The shares closed at US$38.23, a little over the US$38 IPO price. Is it really a blunder or is this a simple case of high expectations? Let us examine what went wrong and why I think it turned out that way. Prior to the IPO, there were news that longtime investors led by Goldman Sachs planned to sell a big chunk of their holdings in the IPO.
Now to those who are into stocks know that announcements like this send mixed signals to the market. This will trigger a lot of questions and uncertainties. Another possible reason is the price. Facebook raised the stock’s projected price from the initial $28 to $35 to a range of $34 to $38. And according to many, the $38 price tag made Facebook far more expensive than competitors like Apple and Google.
The announcement made by General Motors Co. that it will stop advertising on Facebook may have contributed to the stock performance of Facebook. According to General Motors, the reason for the stoppage is that the company wasn’t getting results from Facebook. That announcement might have sent jitters to potential buyers since it casts doubts if Facebook can really generate enough revenue from its 900 million users.
To makes matters worst, a US$15 billion lawsuit was filed against Facebook in connection with its tracking of users’ online activity. The people who filed the case are accusing Facebook of invading users’ privacy by tracking their movements online. These developments will not help Facebook a bit. You have a company with an unclear source of revenue still plus a lawsuit questioning your policy.
And Facebook is doing its best to prove their critics wrong, and to prove their investors that they made the right decision in investing on Facebook. After acquiring Instagram, Facebook recently bought Karma – mobile gift-giving application. Karma allows users to buy gifts from its catalogue from their mobile phones. Recipients would receive a text message informing them of the gift and directing them to a website for them to enter their shipping address.
With this acquisition of Facebook, we can see clearly that Facebook is putting its focus on mobile. Buying Karma, I would say, is good decision – perhaps we’re going to see a social gift-giving very soon. Overall, I think Facebook would be a different company altogether after the IPO. They are now a public company and would be open to scrunity.
Facebook would face a lot of pressure to increase their profits to make their investors happy and satisfied. Facebook is no longer just a Mark Zuckerberg company now. What I don’t want to see happening is for Facebook to start charging their users to use the site just to make their investors happy. Mark should prove that Facebook is indeed a viable company that delivers what it promises to deliver. By the way, Facebook CEO Mark Zuckerberg recently weds his longtime sweetheart – 27-year-old Priscilla Chan. Congratulations to Mark and Priscilla.
(Article written by Jerry Liao)