Facebook IPO helps define the American dream

The initial public offering for Facebook shares reveals much about the American dream

The valuation

When the dust settled after the first day of trading [18th May 2012], Facebook’s valuation, of just over $100 billion placed it roughly on a par with Amazon.

The dream of wealth creation

The wealth accruing to Mark Zuckerman and the other young co-founders has been widely noted. In America, much has also been made about what is seem as tax-dodging by Eduardo Saverin, who has taken up residency in Singapore and renounced his American citizenship, although his actions are seen differently in Singapore


On the date of the public offering [18th May 2012], The Verge attempted to answer the question of why the stock appeared to be trading at a figure based so much on expectations.

Why would so many smart, rich people put such a premium on the stock? IPOs are an insider’s game. Buying the stock today at $38 means paying a premium to the founders, early investors, bankers, and even the bankers’ best clients, all of who have passed the stock down the food chain and taken their bite along the way.

Can Google and Facebook be compared easily?

The success of Google and its continued growth after its own share launch is now being used to justify the excitement. Google’s revenues are roughly three times those of Facebook ($9 billion to $3.5). But the prospects for the two companies seem difficult to assess (although the graph offered in The Verge article is worth studying).

The Initial Public Offering [IPO] was considered less than a success. The Los Angeles Times put it this way

“There was all this pressure and hype and attention with all eyes on Facebook — and the starlet tripped on the red carpet,” said Max Wolff, an analyst at GreenCrest Capital Management in New York. What went wrong? Analysts point to a variety of factors that might have given investors pause. Its valuation at about 100 times earnings likely struck some as too high. Its growth in new users is slowing. And Facebook has not yet found a way to cash in on mobile devices, where social media is gravitating.

This week’s decision by General Motors Co. to stop advertising on Facebook because it wasn’t getting results heightened concerns about how Facebook can profit from its 900 million users.

But perhaps the biggest blunders came in recent days as the company and its largest shareholders moved to maximize their profits at the expense of new investors.

Friendship and economics: The dilemma for Facebook

Other commentators have gone beyond the financials, suggesting a flaw in the proposed growth model of Facebook. The massive popular reach of the corporation comes with a belief that ultimately it was a social phenomenon primarily about achieving social goals. In particular it has redefined personal identity and the concept of friendship. There was always something apart from economics in that set of beliefs.

The dilemma for Facebook becomes more visible now that the corporation is legally obligated to conform to economic principles and governance. Considerations of ethics, stock price and social vision increasingly will interplay. Even its efforts to promote the American Dream may be scrutinized more coolly and globally.

3 Responses to Facebook IPO helps define the American dream

  1. Paul Hinks says:

    From a Leadership perspective, it will be interesting to see how Facebook retains it’s ‘top talent’ – many of these folks now have sufficient funding to pursue whatever goals they desire – will shareholders afford these folks the blank canvas that helped foster & support the creativity that led to what we now know as Facebook?

  2. Paul Hinks says:

    On a broader note – a well documented challenge for Facebook is how to realise the full potential of its rich data set and turn it into profit.

    From an investment perspective I’ll argue the Facebook flotation has an echo of the millennium dotcom bubble that eventually went pop – I’m just not sure that all the investors fully understand what they’ve bought into with Facebook – perhaps for some it’s more of a blind punt. For example, a key investment risk is the uncertainty around privacy laws – governance in this area is currently lacking – future legislation may impact how Facebook proposes to earn revenue from the data it collects from its users. Evidence suggest that Facebook is continuing to push the innovation boundaries in harvesting (& publishing) even more user data (a recent example is the Facebook Timeline feature) – usually innovation is seen as a good thing, however it’s possible that new innovative data collection tactics may actually act as catalyst against Facebook, provoking closer scrutiny of its methods – this would hurt the Facebook investor.

    I agree Zuckerberg & co deserve a great deal of credit for their influence in creating a business with such incredible potential – I just feel there’s a lot of work to be done before it becomes a cash generating juggernaut like Apple.


  3. Paul, you are not alone in that analyis. Watch out for a follow-up blogpost quoting others who see Facebook as a potential indicator of a “Black Swan” approaching Global Fianance (again!).

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