By COLIN STONER
How do you spend almost a decade amassing 900 million friends, only to lose them overnight?
You take your company public.
Facebook’s IPO left many people wondering what happened to the most anticipated offering since Google in 2004. Months of anticipation spiraled into an afternoon selloff that left many questions unanswered, the biggest question being: What the hell is this thing actually worth?
This was not what some early investors and employees were expecting from the largest IPO in NASDAQ’s history. They held the golden ticket, which turned to pyrite in a matter of days.
As it winds down its first month of trading, Facebook (FB - $27.10) is down almost $11, just over 28% from its opening price. Their opening was a disaster, initially caused by a NASDAQ trading delay, and later perpetuated by rumors that earnings estimates were being slashed days before the IPO.
On the open market, many early investors sold their shares slightly below the IPO price, an uncommon practice. Digital Sky Technologies sold 80 million shares. Accel Partners sold 57 million shares. Even Mark Zuckerberg sold 30 million shares. All of these were below the IPO price of $38.
Groupon, who raised an estimated $1.14 billion in venture funding before their November IPO, has not seen a selloff like Facebook, and they actually closed above their IPO price on opening day. Founder Andrew Mason is also not on record of having sold any of his shares in the company. Zynga has also not seen any insider sales from institutions and early investors. One of Zynga’s early investors was also Digital Sky Technologies, which still holds their original stake.
Ignoring $100B valuations and a lot of the noise of lawsuits and other crap in the wake of the Facebook IPO, it doesn’t take a genius to see that getting out was a priority. Digital Sky Technologies, Accel Partners, and Zuckerberg sold about $6.2 billion in Facebook stock immediately after the stock went public, no small chunk of change. Using that same EDGAR data from the Yahoo pages, I estimate at least $10 billion of Facebook insider shares were sold right after the IPO. For some, the IPO was the exit.
I had a hard time finding high-profile IPOs with this much insider activity immediately after the stock went public, which is why I think I see the term “muppet” so much when referring to investors buying Facebook and paying off the insiders. I’m not into conspiracy theories, and I don’t think anything was rigged here, I just think some really smart people just made a ton of money with tricky pricing. The narrative for the whole debacle has turned into a distraction of sorts, and the valuation as a smoke screen. No one knows who to blame, and everyone is pointing fingers.
Facebook is clearly struggling with monetizing their mobile user base. Ever notice how there are no ads in your Android or iOS Facebook app? Even the mobile website is not monetizing any traffic it receives with ads. Facebook was anti-app for a while, and I can’t help but think that this was a reason for that stance. They don’t want to ruin the user experience with ads that take up space on a smaller screen, so they wanted to try and force eyes to the desktop browser with ads on every page. Unfortunately for Facebook, ads are how they put food on the table.
Would Facebook consider charging for their app? People will pay $1 for an app that makes their phone fart, why wouldn’t they pay the same (or more) for a Facebook app? Facebook could leave the mobile web version free for those who revolt against the app charge and avoid forcing anyone to boycott Facebook because they feel priced out. Sure, iTunes and Android Market would get their distribution cuts, but imagine how many apps Facebook could potentially sell.
I don’t make many long-term investments, and I’m not about to change that with Facebook. I really don’t know what it’s going to do.
I do know who they want to beat: Google.
Right now, Facebook is worth roughly 30% of what Google is worth, and I have to imagine that is at least a target for them. A $90 price would get them to Google’s current level, and right now that seems like a pipe dream. I do think this stock is going to either plummet even further to around $15, or have a big comeback and get above the IPO levels.
It will be fascinating to monitor Facebook throughout the summer. Their second quarter ends this month, and there will be many interested parties more qualified than I ready to pick apart their financials. It is clear that the market wants Facebook to be a lot more than a social butterfly, but I also think the market wants Facebook to succeed.
With lingering economic uncertainty, the markets need a hero to step up and inspire confidence. Apple can only do so much.
Innovation Initiative Update: For those interested, I will be assisting local entrepreneurs with their IT and technology questions when I host the Open Hours session at MonTEC from 5:00 – 9:00 p.m. on Wednesday, June 13. No appointment necessary, just stop in. The Innovation Initiative is a cooperative effort between Missoula Economic Partnership, The University of Montana Innovation and Entrepreneurship Program, and Hellgate Venture Network.
Colin Stoner is a Missoula IT consultant and entrepreneur. He has worked in almsot every aspect of IT, and loves most of them that don’t involve Microsoft. He is a Linux nut, a Python hack, and a lover of the cloud. When not stuck behind a monitor wall, you can find him enjoying a beer at one of our many breweries, skiing anywhere but Snowbowl, or playing handball at the Peak.