Facebook is in the news again. And as so often after its IPO, it’s not good news because Wall Street plays strong. But also more than fair.
Facebook’s user base is declining in countries where it reached a penetration rate of 50% or above. Consequently, in sight of growing market saturation, Facebook stock dropped. Again. What’s happening right now is basically what I questioned already in January. It seems I wasn’t that wrong about how Wall Street would behave in sight of a company which has reached market saturation in most of the more lucrative world markets, especially the US. Facebook clearly seems to be clueless about this new situation and it’s a pretty new situation to them. They’ve been investors‘ darling ever since because their story was just too good. Existential criticism is totally new to them.
Today, it’s a different game with different rules. And I am not sure yet if Facebook realized this. The new shareholders are investing for one of two very special reasons – earnings per share or increase in total share value. Facebook’s previous investors poured money into Facebook because of the outlook of a positive IPO itself. That’s two totally different motives.
While Facebook did considerably well raising the IPO hopes, it is very bad at playing the Wall Street game now. And unless Facebook’s strategy shifts towards accepting this new reality and honors the new ownership by increasing (or just starting to create?) real company value and not hopes, I believe Facebook stock will continue to see only one direction – down. Some people at Facebook, those with all the shares at least, cry when they see the current stock performance and some might believe this is just not right. But it is not about right or wrong. It’s about Facebook’s ego which is still just too big. And the good story is partly to blame for that. But sooner or later Facebook needs to face the new reality. It seems to me sort of a self-fulfilling prophecy that Facebook’s valuation will continue to decline as long as their ego is so big and they continue to think that playing to the rules of venture capitalists will get them through. But Wall Street investors like big pension funds and financial institutions think differently. As it seems now, Facebook still hasn’t realized the urge to shift from a venture capitalists’ darling to a company with a management that is serious about company value.
It’s time to wake up, Facebook. You voluntarily chose to play this new game so now you have to do it. Don’t hate the players.
Image (c) by http://www.flickr.com/photos/mknott/
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