Facebook IPO 10 years later – new name, same CEO, known issue

A decade ago, Facebook told public markets that it was pouring money into smartphone apps because mobile adoption was key to the company’s growth, although at the time it was “currently not directly generating significant revenue.”

That was in the prospectus for the Nasdaq debut, which took place ten years ago on Wednesday and resulted in the biggest IPO ever for a US tech company. Facebook’s market cap of over $100 billion immediately made it one of the most valuable technology companies in the world.

But within three months, the stock had lost about half of its value as the market heeded Facebook’s warning. With consumers flocking to smartphones before there was a proven business model for small-screen ads, investors worried that Facebook’s hyper-growth days were in the rearview mirror.

We know how that turned out.

Facebook is now more than 25 times the revenue it was in 2012. And through 2018, over 90% of ad sales came from mobile. At its market cap peak in 2021, Facebook was worth over $1 trillion, largely due to the strength of its core mobile app and Instagram and WhatsApp, which it acquired.

The company now has a new name, Meta. And of the top six executives from the IPO days, only two remain: co-founder and CEO Mark Zuckerberg and chief operating officer Sheryl Sandberg.

For investors, however, the dilemma is very similar. The technology landscape is changing and Zuckerberg makes another bet on the farm about where the journey is going. Facebook said in October it will spend about $10 billion over the next year developing technologies to build the Metaverse, a world of virtual work and play that consumers will access through a headset.

As in 2012, there is no major business model in place and no certainty that Zuckerberg’s vision will materialize in the way he predicts.

“My concerns about the Metaverse are that investing is more like drilling oil wells — you could end up empty-handed, you could get rich,” said Brian Yacktman, chief investment officer of YCG Investments, which oversees more than $1 billion of wealth. “I’m just wondering how big it’s going to be and who the winners are going to be.”

The metaverse’s foggy future is just one reason the company’s stock is down 47% from its September peak, by far the worst performer among the top six U.S. tech companies over the period. User numbers fell in the fourth quarter for the first time ever, and Apple’s privacy changes are hurting Facebook’s ability to deliver targeted advertising.

There’s also the reputational damage the company has suffered since whistleblower and ex-employee Frances Haugen released internal documents showing Facebook is aware of the harm its products are causing, particularly to younger users, and at the same time avoiding measures to remedy them.

Yacktman still owns Meta stock, but his firm hasn’t expanded its position in quite some time. He says the sell-off reflects the market’s view that the Metaverse is a money hole and little more than a Zuckerberg toy. Meanwhile, Facebook remains the clear No. 2 in digital advertising in the U.S., a market that Insider Intelligence expects will grow nearly 50% to $300 billion by 2025.

“They’ve got a cash spushing machine right now, and the market isn’t putting any value on the money they’re burning for the Metaverse,” Yacktman said. In other words, he said the core business with ads is solid and “they have a free option for the metaverse.”

List IPO

The last decade has been a wild ride for the company.

The company’s IPO in 2012 was historic. Facebook raised $16 billion, the third-biggest U.S. IPO of all time, behind only Visa in 2008 and General Motors in 2010. Within the technology industry, Agere Systems was the largest company up to that point, which was spun off from Lucent Technologies in 2001 and was raised about $4.1 billion.

When Facebook went public, it was already one of the dominant brands on the internet, with over 500 million daily active users worldwide and $1 billion in quarterly revenue. Its valuation had skyrocketed in the secondary market as a plethora of private equity funds, mutual fund firms, and hedge funds pumped up the price by offering hefty payouts to employees and existing investors.

Morgan Stanley spearheaded Facebook’s IPO in a coup against Wall Street rival Goldman Sachs, but the offering didn’t go as planned. The company increased the price range for the offering amid internal concerns about Facebook’s second-quarter and full-year prospects. A group of shareholders are suing Facebook and Morgan Stanley for withholding essential information.

The Nasdaq also suffered what it called a “technical glitch” that delayed the opening of Facebook trading and prevented some orders from being properly filled. The stock ended its first day little changed and continued to plummet from there, beginning with a 19% drop over the next two days.

Facebook shares only recovered to their IPO level of $38 in August 2013, more than 14 months after their debut.

Firsthand Capital Management’s chief investment officer Kevin Landis watched the drama from his office in San Jose, California, about 20 miles from Facebook’s Menlo Park headquarters.

Firsthand began buying Facebook stock in the private market in 2011, a purchase he said “looked smart for about five minutes” until the stock plummeted after the IPO. He held that investment until around 2014, when the stock rallied and started trading in the ’70s.

Landis said he started buying another of his funds after the decline when the stock was in the 20s and rode it until it hit about $200 around the start of the pandemic in 2020.

“The analysis was simple: Facebook should become a powerful advertising platform,” Landis said, referring to his original thesis. The only comparable model is Google, and Facebook “could be worth a significant fraction of what Google was worth,” he added.

Still, Landis said he never got his own Facebook page because he loathed the loss of privacy that comes with handing over so much personal information.

“I broke one of my own rules – I invested in something I thought was big, but without getting up to my elbows in it,” he said.

It was a lucrative bet. At the end of 2013, mobile advertising accounted for 45% of Facebook’s ad revenue, up from 11% in 2012, proving once again that brands follow the eye. Between 2013 and 2018, Facebook’s revenue growth averaged about 50% per year.

The engine was so powerful that even seemingly disastrous news did not disrupt Facebook’s finances. After Donald Trump was elected president in 2016, Zuckerberg repeatedly downplayed the role his website played in spreading disinformation and election interference by Russians. Then came the Cambridge Analytica scandal of 2018, when reports revealed that the analytics company had abusively accessed the data of 87 million Facebook users and used it to help Trump target ads for the 2016 election.

Finally, the Haugen saga began late last year with a series of reports in The Wall Street Journal, followed by stories from many other publications detailing Facebook’s focus on growth despite the negative consequences of its products.

“Hugely Mixed Feelings”

Facebook’s conduct has led to numerous government investigations. Executives were routinely called before Congress to testify, and in September several US lawmakers accused the company of following Big Tobacco’s playbook and “promoting a product they know is harmful to the health of young people.” ‘, in the words of Sen. Ed Markey, D-Mass.

The Haugen papers coincided with the end of Facebook’s extended bull market rally. But the technology sector was also broadly nearing its peak and began to retreat in November as concerns about inflation and rising interest rates punished high-growth stocks.

February was the worst day on record for meta shareholders. The stock fell 26% after a weak revenue forecast and an expected $10 billion loss on privacy changes Apple made to its mobile operating system to limit ad targeting.

A far cry from the rapid expansion days of a few years ago, Facebook is now facing a potential second-quarter revenue slowdown, hurt by inflationary pressures and the war in Ukraine, as well as the rising popularity of video app TikTok, which is snagging users and ads Dollar.

“There’s nothing existential, they’re not going bankrupt and they’re not going to run out of money — it’s just not a very compelling story for the near future,” said David Golden, partner at San Francisco-based technology investment firm Revolution Ventures. Facebook’s “vise grip on the market has been significantly eased by alternatives on social media and alternatives in other channels,” he said.

Zuckerberg, who just turned 38 and retains control of his company and board of directors, doesn’t talk much about social media and mobile advertising at all these days. It’s all about the Metaverse and Meta’s Reality Labs division, which posted a nearly $3 billion loss on revenue of $695 million in the first quarter, mostly from VR headsets.

“It’s not until those products really get to market and scale in a meaningful way, and eventually that market gets big, that’s going to be a big revenue or profit contributor to the business,” Zuckerberg said on the company’s conference call last month. “This lays the groundwork for a very exciting 2030s, if that’s the case — if that’s more established as the primary computing platform.”

Landis, who hasn’t owned the stock in two years, says he’s more frightened than excited by Zuckerberg’s vision and sees an absorption in virtual reality as “highly dystopian.”

“My hope is that it doesn’t take over people’s lives, it just makes people’s lives better,” Landis said.

Given how much Facebook knows about its users and what the public has learned over the past few years about how the company handles data and privacy, Landis doesn’t trust Facebook to do the right thing.

“It’s impossible to look at this company without having extremely mixed feelings,” he said.

WATCH: Meta is “one of the best assets in consumer technology,” says Mahaney of Evercore ISI

https://www.cnbc.com/2022/05/18/facebook-ipo-10-years-later-new-name-same-ceo-familiar-problem.html Facebook IPO 10 years later – new name, same CEO, known issue

Jane Marczewski

World Time Todays is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – admin@worldtimetodays.com. The content will be deleted within 24 hours.

Related Articles

Back to top button