The Biz of Pacelinebiz

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Facebook Fizzles

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What were they thinking?

A few weeks ago the much anticipated Facebook IPO (Ticker symbol FB) hit the market and the stock has disappointed so far in trading action.  As I write this, it is down about 25% from its first day closing price.  The stock performance is really not what I wanted to talk about today.  I want to talk about what was going on inside of the heads of those at the company and the underwriters who rolled this out. 

How can so much anticipation and excitement before the IPO turn into such a flop once going public?  First of all I want to acknowledge that it has been less than a month since the IPO and no one can say what the long term performance of the company or the stock will be.  That being said, how is it that after the stock was issued all sorts of problems with the company were identified?  A few big contributors of the stock price falling are the ineffectiveness of its advertising and the difficulty to take advantage of the mobile internet space.  Weren’t these issues present before the IPO?  I believe so.  What were they thinking?

Right before the IPO, General Motors announced it was going to stop advertising on Facebook because they said it proved to be ineffective.  The growth of the internet is largely coming from the use of smart phones and tablets.  This fact has been known for some time. In fact, many computer companies and chip makers have been under pressure to justify their stock prices since it is anticipated that they will lose market share to companies that make these new devices that are being used more and more for internet browsing.

I am not a user of Facebook and have always had a hard time to see the value of the company – 900 million users or not.  Yes, they do have billions of revenue from advertising but this is coming from a medium – traditional computer internet usage that appears to be losing share for an up and comer – mobile browsing.  If Facebook can’t figure out how to take advantage of this newer technology their chances of success will diminish.  See newspapers and other print advertising media for an example.

Before we write off Facebook we also need to understand there is value with all those users and all that information that they share such as demographics and their “likes”.  Maybe they can figure out a way to use that data from those 900 million users to become the next new search engine and knock Google off their throne.  For stockholders of Facebook I hope they can turn the fad of the last decade into a viable business for the future. 

Have a good week.  I know I will by actually talking face to face with my friends.


Written by pacelinebiz

June 4, 2012 at 10:06 am

2 Responses

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  1. Ha..Ha. What were they thinking. I think both you and I know what they were thinking. May be there intentions were right but the ultimate goal was to squeeze even the last penny out of the IPO ( or maybe even more than the company was worth). IPOs are very risky, that being said, the corporate greed makes it even more riskier. It should not be called IPO but “in your IPO”. I am just glad I waited and did not buy any facebook stock. Maybe when it comes down to $15.

    Vikas Saini

    June 4, 2012 at 10:45 am

    • As of June 6 it is now down about 30%. Tech stocks are getting too risky due to rapidity of change in the sector. Who knows if having apple in your portfolio is safe? All it takes is a new device to make the iPad obsolete and it’s on to the next big thing and so on.


      June 7, 2012 at 8:15 am

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