I’ve been following the Facebook flotation with much interest ~ or should I say bemusement. Facebook’s flotation price per share was a whopping $38 and my initial reaction at the time was “really, can a company like Facebook really be worth that much?’.
Sice flotation Facebook shares have ‘slumped’, but I tend to see this as them levelling out to nearer to their true market value; actually I’d expect them to fall even further to reach parity with similar Internet ventures. Mind you there is a history of high valuations in this industry with LinkedIn trading at flotation for an even more impressive $90 per share on 19th May 2011. Indeed after seeing LinkedIn’s spectacular flotation success Mark Zuckerberg was probably already rubbing his hands with glee. A flotation was perhaps too appealing to miss – but could the greed of the Facebook elite now lead to it’s downfall?
As we know compared to LinkedIn’s glory the Facebook flotation has been as lack-lustre as I had imagined, but even more worryingly it is now mired in controversy and is under assault from angry shareholders who are looking to sue Facebook for hiding the company’s faltering growth. Now I wouldn’t say I’m a Social Media guru, but it seemed pretty obvious to me that Facebook was over-valued. Especially as Facebook users are increasingly accessing the site with their smartphones, which generates less advertising revenue. Moreover the Facebook business model ceratinly isn’t as strong as that of LinkedIn who unlike Facebook are seeing growth in these rough seas. A Social Media model such as that of Facebook has an obvious allure, but what LinkedIn does is tap into the real business core of the Internet. Facebook let’s us chat and post images, but LinkedIn lets the people with money connect in ways that business hasn’t seen before and that is even more alluring.
Now that shares have crashed by 20% it seems the dust still hasn’t settled; indeed it seems we have barely scratched the surface of the Facebook flotation saga, Some observers are saving that the flotation could be the undoing of Facebook, or ‘Fadebook’, but for me that is seriously premature. By the end of 2012 Facebook is expected to reach an astounding one billion members and while this may be reducing or stagnating in the UK, US, Canada & Norway it should still see growth in emerging markets.
So it’s interesting times ahead for Facebook, but certainly not the end, but one things for sure and that is that investors will be more cautious when investing in Social Media companies rather than getting caught up in all the hype.
Do you agree with me? I welcome your comments.