Some thoughts on the Facebook IPO
I spent most of this morning reading all the coverage on the inevitable Facebook IPO. Here are some good articles on the subject. I spent a lot of time reading this, because apparently there wasn’t any other tech related news going on.
The question that pops into my mind is: should I get in on this? The answer that immediately comes to mind is: I really don’t know enough about the stock market to make an informed decision. When Google went public it’s stock was under $100, it’s now trading at $585. In hindsight it seems so obvious. Facebook is bigger (revenue and profit) today than Google was when it went public and Facebook is growing at a ridiculous pace.
The problem is that Facebook’s growth is slowing. Growth (usually in profits) is one of the major drivers of stock prices. Analysts want to see growth and love to see companies beating growth expectations. Facebook is still growing, but just not as quickly as they once were. They are reaching a saturation point in a lot of countries. There are only so many potential users out there and when they have broken 60% in a market (like the U.S.) or 80% in a market (like Chile), each additional user is even harder to acquire. It’s called diminishing returns. Basic law of economics.
To continue growth Facebook is going to have to focus on less saturated markets, namely places like China where the penetration is effectively 0%. They are smart, they realize this. That’s why Mark Zuckerberg had that really public trip to China and why the company has been doing everything they can to get a blessing from the government there. What totalitarian government (which already employs widespread censorship on the internet) is going to allow their citizens to use a service that has been lauded as one of the reasons for the Arab Spring? I predict Facebook is going to, or has already started building tools to facilitate further censorship to appease the Chinese government. They have to do this to get at the nearly one billion potential users the country can offer in return.
This is the problem with publicly traded companies. Profits becomes the motivating factor for decisions. Facebook already has a terrible track record regarding privacy and censorship. I can’t support a company that is going to have to willingly undermine basic freedoms of users to make money. Not to mention support one that is already doing this to some extent.
So I won’t be investing for quasi-moral reasons, but will the stock go up? I think there will be a huge surge on day one because of the pent up demand and then the stock will cool off by the end of the following week and then see steady growth until the next end of quarter earnings report.
Obviously a lot of speculation here and at the end of the day I should probably issue some sort of legal disclaimer that I’m not an expert (as if that wasn’t obvious). What do you think? Anyone hitting f5 on the keyboard to buy some $FB stock?






