The internet is abound with news today that the world’s largest social networking site is set to sell off the highest value shares ever offered by an internet company. Despite this the funds now expected to be raised are still only half of what analysts predicted.
As anyone who caught David Fincher’s slick feature film The Social Network (itself an adaptation of Ben Mezrich’s 2009 book The Accidental Billionaires) knows, Facebook began life in a university dorm room. With that in mind floating the company on the stock market for $5billion (around £3.16billion) doesn’t sound like a bad deal, especially when you consider that gatekeepers Google only managed $1.67billion back in 2004.
Founding father Mark Zuckerberg- who currently owns around a quarter of the company- should be satisfied with these numbers. And no doubt he is, or at least the quotes currently being banded about concerning his re-emphasising that Facebook is more of a ‘global mission to connect’ than a business opportunity suggest he’s not quibbling over the odd billion dollars.
But one of the reasons why the social network in question isn’t going on sale for the price some had initially thought possible is its potential for future growth. With 845million monthly users, and some 400million daily users (give or take… again, who’s really counting when the numbers are this high) Facebook still has a long way to go before complete global domination, but profiles do not mean profit, and in the world of global trading margins are everything.
As Kathleen Smith, principal of IPO investment advisory firm Renaissance Capital, told BBC News– Facebook is more profitable than predicted, but then “what new areas of business is it expecting to pursue beyond display ads?” Longevity is something people are still sceptical about when it comes to dotcoms, and so far the exponential increase in Facebook users hasn’t done much to ease concerns, with the phrase ‘burning yourself out’ coming to many minds; similar sites have come and gone in the past.
There’s also an even bigger gamble here; user numbers have fallen in some areas, if this happened on a large scale the implications could be grave, and with more advertising a likely outcome of the impending floatation it’s easy to imagine a worst case scenario on that front. Meanwhile, the advertisers will need to start seeing some regular large returns to warrant injecting the amount of cash into Facebook that currently supports the overall company worth (between $80-$100billion).
That figure is under a quarter of Apple’s value, less than half of Microsoft, and $87billion short of Google. Considering the strength inherent in those brands (and the fact all they all produce ‘physical’ products, not simply online services) Zuckerberg’s web based pension plan isn’t doing too badly at all. But it’s where things go from here that could well be the real baptism of fire, as ever then only time will tell how this one pans out.