Facebook listed on the NASDAQ stock exchange yesterday at a price of $38 per share – effectively valuing the company at $104 Billion dollars. Whilst yes a great milestone in financial terms, it finished the day at $39.23 per share – not a resounding success in financial terms if you look at other technology company listings.
As previously stated in our ‘Why Only Fools Will Buy Shares In Facebook’s Overvalued IPO post back in February this year – there are so many reasons why it is overvalued and you can read them in that post. However, today I want to examine the human side of Facebook and peoples use of the Social Network.
Businesses already realize that employees using Facebook are less productive for their business. This is reinforced by the fact these businesses generally prevent social media usage at work or only allow access during employee lunch breaks. It would be an interesting experiment to survey the efficiency of workers in a company who are allowed unfettered access against those who are not in the same or another company.
Figures illustrate that on a global level individuals’ usage (hours spent on Facebook, have been increasing year on year for quite a while now. Does this indicate people are using the service to enrich their lives? Or could it in fact just signify that more and more people are bored or social recluses? If this upwards trend of Facebook usage continues to rise, where does that leave physical entertainment focused businesses?
Whilst undeniably a great marketing tool for both earned media via personal and business pages, as well as paid media via Facebook advertisements. What are the effects to the economy at large when more people are updating their Facebook statuses instead of interacting with the real physical world they live within?
What are the effects on what the generation before mine fought for in terms of privacy? It is clear that those who have no regard for individual’s rights to such privacy are eroding the issue of privacy. Yes, it is fine if a number of people want to give away their right to privacy. However, that must not at the same time disregard other people who have chosen to retain their right to privacy.
I use Facebook as a tool to keep connected on a semi- regular basis, I do not use it every day. But I do find the tedium when so many people ramble about such senseless issues such as what they are eating or drinking, little own the more vacuous types.
Eric Schmitt Chairman of Google recently summed it all up by stating, “Life is not about your friend count, it’s about the friends you can count on”. The fact Mark Zuckerberg has over 14,000,000 followers or friend son his Facebook profile reinforce this. How many of these do you think are really friends? So, in actual fact has Facebook actually cheapened the word ‘friend” and what it really means in the real world?
The fact on the launch IPO day the share price only rose 0.6% to $38.23 USD illustrates many investors uneasiness with such a high valuation to profits ratio. Sure, many Facebook staff, institutional investors and Mark Zuckerberg himself have done well from a sell off of their shareholdings – but one does wonder where these new investors who purchased stock last week stand?
A Bloomberg poll of 1,253 investors, analysts and traders showed that 70% believed the Facebook valuation to be overvalued. With only a meagre 7% saying it was properly valued (10 % of the investment professionals who stated it was overvalued). A further 11% stated they “Had no idea how Facebook should be valued”. Let’s remember the people questioned for this survey were investment professionals and more than 2/3rds stated they believed it was overvalued. TMV will leave it in your hands to make up your own view.
However, in TMV’s view the listing and its subsequent valuation present essentially insurmountable targets to be achieved. In financial terms Facebook would need to be serving over 30% of the worlds Internet advertising inventory every single day for the next 20 years to validate its current valuation. Anyone with half a brain realizes that is impossible and totally unachievable.
The fact the company needs to reach such high targets makes TMV believe n actual fact due its impossibility Facebook’s share price will decline rapidly over the next three months to hover around the $25 USD per share mark $13 per share down or 33% lower than on IPO listing day. Who knows where it will fall to over the coming years as it increasingly becomes apparent, they cannot reach the targets required to meet its IPO day valuation.