After convincing more than 900 million people to post photos of themselves or gush about their personal lives, Facebook wants something more from its users and admirers: money. The company’s CEO, Mark Zuckerberg, set out on a coast-to-coast tour pitching money managers before Facebook’s initial public offering (IPO) this week. With shares expected to be priced between $34 and $38, it is being heralded as the most anticipated tech IPO since Google’s in 2004. If the lineups during Zuckerberg’s road show are any indication, many think this is a can’t-miss opportunity.
But what happens after the initial IPO euphoria (and likely stock price jump) wears off? Despite an anticipated company valuation of up to $96 billion, there is no guarantee Facebook and its stock will live up to the hype. To the contrary, there’s growing skepticism among some analysts about Facebook’s future—and not only because Zuckerberg donned a grey hoodie during his presentations rather than more serious attire. “When you have this crowd mentality or hype over one stock, usually people get hurt,” says Greg Newman, a senior wealth adviser at ScotiaMcLeod Inc. “It’s an infectious product, but people don’t understand it has to be a good investment, too.”
There are concerns that 27-year-old Zuckerberg, who will own about 28 per cent of Facebook and a majority of voting shares under the dual class structure, might make a brash move that could take the company in the wrong direction. But a bigger fear is that Facebook lacks a game plan in a tech world that is fast changing. The Internet has entered a new phase—mobile—and Facebook is no longer king. “Facebook is built for PC,” says Eric Jackson, the founder and managing member of the technology-focused hedge fund Ironfire Capital LLC. “Things like the Timeline [a feature on the site]—that’s really something you need a big screen in front of you to look at.” This means the company is being challenged by start-ups like Instagram, a mobile photo-sharing app, which Facebook plans to acquire for $1 billion. But it can’t just keep swallowing the competition. Two other once-popular networking sites succumbed to rivals (Friendster and MySpace), and other former tech darlings, like Yahoo, have failed to live up to once-lofty ambitions and have hit hard times. What makes Facebook different?
On May 9, Facebook updated its IPO filing, admitting it hasn’t yet found a way to monetize ads on mobile, a platform on which more than 500 million users view the site. The company is looking for money-making solutions. The next day, it revealed “App Center,” a hub which allows software developers to sell apps directly on the site.
Vlad Stesin, co-founder of Montreal-based Bloom Digital Platforms, argues there are opportunities in the stock. “There’s no doubt in my mind Facebook is becoming the de facto standard for advertising,” says Stesin. “Even if you’re a smaller company, not advertising on Facebook is kind of foolish.” He says that with the talent and database of personal information the company has, it will come up with a solution for mobile. “It’s hard for me to say investors wouldn’t be able to at least double their money in four to five years.” (He plans to buy a small amount of Facebook stock.)
Jackson, however, remains skeptical. Facebook—and even Google for that matter—aren’t too big to get left behind, he says. “There are probably 12-year-olds right now eating Cheerios this morning who are the Mark Zuckerbergs of the future,” he says. “Facebook didn’t become a Facebook by being a better Yahoo. It created something completely new.”