Facebook IPO is a battle for hearts and minds
date
Sep 5, 2012
slug
2012-facebook-ipo-is-battle-for-hearts-and-minds
status
Published
tags
Facebook
IPO
investment
business
risks
type
Post
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summary
Facebook IPO: A Battle of Passion and Uncertainty as Company's Value Soars to $100 Billion, Challenging Traditional Market Giants, Despite Risks and Controversies.
The most anticipated stock exchange entry in history is expected to happen nine days after this post. Facebook, a company that has about 15% of earthlings as its users, will offer its shares at a quote that makes its market value close to US$100 billion, which would put it ahead of colossuses like McDonald's, Visa, Unilever, and Siemens. An episode that deals with values of these dimensions should generate absolutely cold and calculating assessments. However, the subject has become as passionate a battle as a discussion about football, with very few observers seeing the issue without taking sides as enthusiasts or detractors. In hearts and minds, Facebook is already on the Stock Exchange.
The idea that a company that is less than ten years old and has just over 3,000 employees could be worth so much money and rank among the 100 largest companies in the world defies the imagination. The big problem is that currently, reality defies imagination. Facebook has a frightening ability to prospect data about people (whose market translation is "consumers") unprecedented and whose potential is impossible to define. The questions that should guide the purchase decision of a potential shareholder are:
- What is Facebook's ability to continue increasing its revenue?
- What is the growth curve of its user base?
- What is the real potential of the tool to extract behavioral data from these users?
- What legal risks (such as privacy invasion carried out by the tool) can threaten the business?
Of course, as the reader might imagine, these questions have an absurd amount of variables that the "experts" who set out to answer them either have supernatural powers or are guessing (and, of course, thousands of consultancies are filling their pockets with money with little more than guesses). The business of investing in an IPO (acronym for "initial public offering") is always risky and when it comes to a company that has no precedents in a market without precedents and in a time whose technological development has no precedents, the risk is almost insane - as insane as the amount of money that the IPO will move.
In this absolute uncertainty, security providers sprout in droves, with analysts who say that buying Facebook shares is a sure thing as well as articles that question the final efficiency of the products that Facebook sells with the information it extracts from its unsuspecting users to almost factual analyses about the company's revenue growth (growth that has been falling, but to justify a value of a hundred billion dollars, would need to increase its revenue at astronomical rates for about a decade).
The reality is that Mark Zuckerberg's company is very similar to NASA's first prototypes in the space race. The best physicists, mathematicians, and various scientists made their projects with the utmost dedication, but they entered an unknown territory when they planned the first rockets. Despite so much science and caution, some prototypes reached space but not without others crumbling. Facebook's challenge is to convince more and more investors that they may have in their hands a company that is the strongest candidate to be the first private corporation with concrete global influence in spheres that only the governments of countries used to have (the Arab Spring is an example of how the social network can be decisive and not by chance, Arab princes invested US$300 million in Twitter). There is no company really competing with FB on this scale (no, not even Google+) and that can undoubtedly become, all risks surpassed, an epic business.
In the battle for hearts and minds, many click whores come into play (characters I addressed in another post). Although very young, the technology industry is as or more addicted than any other. Do a search with the question about whether Facebook is a good investment and you will see that there are more available click whores than you imagine. In truth, without the support of this character, no company can survive and much less make the best possible capitalization in an IPO. And besides the risk of opinions with ulterior motives, there is a kind of desperation of the opinion makers to be consecrated as the prophets who will say whether the business is good or not. And let's say: 90% of the coverage is favorable to the IPO, to the point that even in a public company like PBS American, in a poll about what is thought will happen with the initial share offering, all available options are, in a way, positive (none of them leaves room for the possibility of the IPO being a bad business).
And is Facebook a good business or not? The correct question in this case is: for whom is Facebook's IPO a good business? It certainly will be for Mark Zuckerberg and other partners of the company. As a pure investment, for an elderly retiree from Alabama, it is less likely; for the large media groups, there are certainly possible spectacular gains; for the Wall Street sharks, in the short term, almost certainly yes, because it is certain that Facebook's titles will have astronomical valuations (at least in the short term). For society as a whole, there are worrying omens such as the company's support for very dangerous legislation such as CISPA (something that has left the company under cross-eyed even from potential investors) and from a societal point of view, the more power there is in the hand of fewer and larger corporations, the worse. The ideal would be to have Facebook with a large enough number of shareholders to increasingly represent the society that it increasingly depicts, but this is definitely the antithesis of Wall Street.