There has definitely been some hype around the IPO of Facebook in the last days and at least the same level of disappointment. While I wasn’t following the IPO that much, I also wasn’t surprised by all the downs. I already expressed my doubts five months ago in my last post and if you still plan to invest in Facebook, read it now, please, it is free and good advice for a strategic long-term “value investor“.
So, what happened exactly?
Following the all-so-much-hyped IPO attributing a ridiculous valuation to Facebook, its shares dropped significantly. Media had something to talk about and found some poor people who they held responsible for the disappointment, but it’s all relative.
The truth is sometimes simple. There are three players here, Facebook, the financial markets and us users including the media. We all love Facebook. Facebook is social and as human beings we love social. Plus it’s the story of Silicon Valley, the story of a dream for many of us. The financial markets, on the other hand, are not stupid. They are not social but driven by simple financial metrics such as dividends and increases in company value. We all know that much of the trading today is computerized trading anyway, so it is really the contrary of social. Facebook on the other hand embraced social as its “raison d’être” and never worried too much about what financial markets wanted.
So, what went wrong, exactly?
It is as one colleague recently told me as well: “I have to sell these guys a story!” That is what Facebook didn’t do or perhaps isn’t even able to do. What would be worse, I don’t know. But the markets have just made it clear that they want to have a story for them and not for the users. And that story must include profitability, revenue growth and a strong and stable business model. That’s what they appreciate and what they didn’t get. As I said in my previous post, Facebook needs a new easy-to-understand-and-still-full-of-dreams formula, but this time one for the financial markets. I am curious to see that.
So, what is your story now, Facebook?