As we are approaching the Facebook IPO this Friday, there are a plethora of articles and segments that have been coming out on every news website and continuous television coverage that covers every development of the IPO in great detail.
Yesterday, the major financial websites ran articles that discussed the majority of the largest shareholders who have increased the amount of shares that they will be offering to the public; an amount that together will raise the size of the IPO approximately 25%.
notable shareholders who are increasing their sale size
- Peter Thiel 16.8 million shares, up from 7.7 million
- DST Global 46 million shares, up from 26.3 million
- Goldman Sachs 28.7 million shares, up from 13.2 million
It seems to me that the retail investors want to purchase Facebook shares as soon as they can to replicate what happened with Google during their IPO. However, there are major differences. The Facebook IPO is much larger, about ten times the size of the Google IPO. The Google business model is much simpler to understand from a money making perspective. To state a very simple example, lets say you want to buy a computer, you Google “computer” and your results are Best Buy, Dell, etc., you click on Best Buy, they get a customer thanks to the Google search. For Facebook, however, making money is not that clear. The primary difference is that you went to Google to search for computers as your main objective, when you go to Facebook the objective is to connect with friends, and possibly clicking on a computer ad is only a side-effect.
There was a segment on CNBC where several analysts were saying that to make profits, Facebook will have to sell ad space on its website. As someone who uses Facebook primarily to keep in touch with people who I do not normally call/text or live in the same area as, I am not looking forward to having the current Facebook interface cluttered up with advertisements. A Forbes Article
yesterday described how GM pulled their account where they spent 40 million a year to advertise on Facebook stating that GM questioned the effectiveness of advertising on Facebook. After taking a poll of some friends and acquaintances this morning, it seems that everyone agrees that they do not look to Facebook as an advertising medium, and would get rather upset if Facebook was flooded with additional advertising banners. Not a single person I have talked to has ever bought anything as a direct result of clicking on a Facebook ad.
The price earnings multiple of Facebook when considering the current valuation is currently in the 90s which is higher than any S&P 500 companies. So why are the current shareholders announcing that they are selling additional shares (some more than doubling their offering) so close to the IPO? Are they perhaps trying to get the most bang for their buck before the hype dies down along with the stock price? Or is this just a normal exit for the VC firms who are winding down their investment to realize their profits?
I want to expand my survey to WSO and see what you guys think about Facebook and advertising. Do you guys and gals feel that if Facebook had additional banners, pop-ups, and other forms of advertising, would that make you want to check out the products? Or would it be a nuisance when you are trying to chat with your friends?
Ads will never work on facebook. Or any website for that matter. Anyone who still clicks on ads (97% of which are fake/viruses) needs to wake up. Facebook needs another way to monetize other than ads.
use a subscription model for service?
they can sell cards at walmart/walgreens
who the f*** would pay for FB lol
well people play for wow, eq2, swg, eq2, psn, xbox, free realms all using cards its like 15 usd for X amount of points that are used to pay for subscription services and items etc. It's very successful SOE seen profits increase b 600% based on the model
You'd be surprised.
From my earlier post...
While I have doubts about the effectiveness of its ads, Facebook still has a ton of potential. The fact is that Facebook has the single largest database of human preferences in the world. It has to figure out how to monetize this; and if it does, it will be huge. We're still trying to figure out how to effectively use Big Data - I see this a big focus of tech companies in the coming decade. But once this happens...
I used to be quite against Facebook in terms of its viability as a company but what I see is that is has HUGE potential to utilize what it has to make money but just has to figure out how.
Also, Facebook is a platform - that is, its product can improve without it spending a dime, through third-party applications (Zygna, for example). Lots of room for improvement here. Frankly, I think we'll see a lot of adjustments to Facebook's UI in the next few years as a lot of the functionality and handling is just not up to its potential - I think it's easy to forget this point.
I'm probably staying clear of the actual IPO myself but based on the previous thoughts am willing to bet that Facebook can - and will - become extremely viable, making it very good to invest in in the long run.
This ^
Although I think multiples in the 90's are a bit steep I still believe the IPO will be over subscription.
I wouldn't be surprised if they somehow made their way into television commercial advertising. With Apple TV and the rumored Google TV in the works, I'd say it's a possibility.
Great post. It's hard to monetize people's preferences in an environment where users aren't "seeking"..
as you rightly said, FB needs to evolve from its environment ie it needs to swallow other services into its ecostystem. This will be hard though. What stops platform like Zynga going out on their own? they've already made plans for their own platform and accout for 12% of FB's revenue.
I think it's much easier to draw and maintain users through a portal like Facebook. Also, it loses the social aspect once it gets off Facebook. I think Zynga games without Facebook features at all, including the "Facebook login" thing, lose a lot of their allure. So I don't see Zygna being completely independent of Facebook. Draw something is losing users as is; I doubt they want to lose more.
So they will get most of their revenues from ads on the site, and yet they recently introduced the facebook messanger, which allows you to use the facebook chat without going on the website. I only use facebook for chat, so now I don't have to go on facebook.com at all and I won't see any of their ads. Doesn't make sense to me.
FB needs to pivot like Google did in order to continue being successful.
I use an ad blocker on my browser anyway.
The real problem y'all seem to be forgetting is MOBILE. Huge increase in mobile users versus the old vanilla product on the browser - and when's the last time you even SAW an ad on either your phone or tablet?
I'm quite exciting for the IPO as the syndicate team did a great job as per the price range being upped just yesterday - this is also probably an explanation for the insiders selling out more at such lofty levels.
I say $100bn++ easy come this friday, no way all the long-onlys aren't gonna gobble this company up for the long hold.
our desks must be fucking tired of hearing calls asking "do we get private placement??"
we set unsolicited limit orders already.
Quite frankly I could care less about FB long term.. Looking to sell pre-IPO shares at the open/shortly after
So essentially investors are starting to worry FB is overvalued? Didn't see that one coming (sarcasm). Oh, and as far as the suggestion to have ppl pay to use FB, there is a -% chance that would work. A new competitor would step up offering free membership and would very quickly send FB to shit. There would be 0 reason to stay with them and start paying rather than making the switch. While Zuckerberg proved he is an assclown by paying $1 bil for Instagram, I doubt even hes THAT dumb
I do not think having advertisements as their sole/predominant source of revenue is going to work. They are having trouble generating exorbitant amounts of revenue from mobile browsing. As more people acquire smartphones and access facebook from their phone, this can be a catalyst that will exacerbate decreasing ad revenues (GM leaving, etc).
That's just about the viability of their future revenues. Some analysts think they need to integrate e-commerce within the site (somehow); however, polls show users do not trust facebook enough to do their e-commerce transactions online.
Not even going to talk about how expensive the stock will be: 25x Sales. Google and IBM are 2x Sales.
I would short it (in the long-term 3+years).
Seems like fb is over hyped..but time will tell.
I'm going to laugh so hard when this stock crashes. It'll be like Groupon except on a much larger scale and 10x worse. Sure they have lots of data, but there's no way to monetize it enough to justify a 100 P/E.
FB's business model is unsustainable, that and the fact that the primary investors are exiting at this time instead of holding on to their stakes for the long term means they know that the hoopla won't last much longer.
Secondly FB does not create any "social" value at-least GOOG allowed people to do something useful in terms of managing and searching the internet.
This won't end well
FB needs to get the ball rolling with new revenue streams. As GM realized, FB's advertising isn't that different from banner ads; it's fairly ineffective, at least compared to TV commercials. Does FB get a cut of Zynga's profit?
Has anyone heard of the FB Microphone? Not sure if that is exactly what it is called, but it's an idea I heard thrown around at FB. For $1/$2, you can post a status update, that is guaranteed to show up on all of your friend's feeds/walls throughout the day. Perhaps a way to brag about some big accomplishment, or be funny, or something like that. Nothing crazy, but it is potential out of the box thinking, which FB needs long-term.
That sounds annoying as fuck
Facebook IPO vs. Groupon post IPO slide will be awfully similiar
Maybe they can start selling their users' information to a third-party
i think it would mark the beginning of the end for FB if they started doing this.
Peter Thiel, DST Global, Goldman and a handful of others are going to make a cubic fuckton of money, and unfortunately won't be the ones affected when I short FB
Anyone else hate this company yet?
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