Facebook held it’s initial public offering (IPO) on May 18, 2012. This IPO was one of the biggest in technology, and the biggest in internet history, with a peak market capitalisation of over $104billion. For many years Mark Zuckerberg had been unwilling to float the company and resisted a number of buyout opportunities for Facebook since it’s founding in 2004. The company had continued to remain private up until this point but was forced to go public after the number of internal private investors reached 500. The target valuation for the share in May was sitting somewhere between $28 and $35, and continued to increase to $34 to $38 per share. High demand from retail investors encouraged them to decide on a high selling price of $38 per share. Everything was set up and ready to go. The next series of events however have been described as nothing but disastrous for the company…
Firstly the Nasdaq suffered a computer malfunction during the first few hours of the IPO leading to tens of millions of dollars in trades being wrongly placed. An article by the New York Times (2012) states that it is almost beyond belief that a major stock exchange could fail so badly during one of the most publicized I.P.O.s in history.
The biggest killer though was the huge decline in the share price within the first month. After the first week, Facebook’s stock was more than 17 percent below its $38 offering price. It is now sitting at roughly $22 per share. I don’t know about you, but I wouldn’t be a happy camper if I had invested in the stock…
Facebook now have a new set of challenges to deal with:
- How they deal with the negative PR of the disastrous IPO. The company raised $16billion in capital at the expense of many eager investors who bought into the hype. How many mum and dad investors wanting to ride the tech boom would have lost out? Not only that. Early investors such as the venture capital firm Accel Partners are selling an unusually high number of shares as well as Goldman Sachs selling about half of its stake – far more then the firm initially planned.
- How they manage their users needs and shareholder needs in unison? Who is more important? An article by Bloomberg Businessweek (2012) suggests that Facebook will have to ‘annoy their users to justify their valuation’. Bottom line. Facebook need to boost revenues and the only two ways to do this are to either find more places to advertise or to further promote their digital currency; Facebook credits which users use to buy virtual goods. Either of the two will however require users to be constantly bombarded by the two to increase revenues.
- How do they continue to build revenue when almost 80% of Facebook usage is now done on mobile devices? I don’t know if any of you have realized this but if you have recently downloaded the new update for the Facebook app you will see that it gives users significantly less features. You are now unable to upload albums or tag photos and I’m sure there are a variety of other things they have removed. I can only assume that this is a pledge to try to get people back to using the site on their computers? To me this is a really obvious way of showing that increasing shareholder revenue is more important then user needs and I’m sure I am not the only one..
It will be really interesting to see how Facebook goes about managing these above challenges. How do you see it playing out?