Just pondering the pandemonium over the highly anticipated Facebook Inc [FB.NASDAQ] IPO. (download the prospectus here)
There has been so much hype and interest whipped up by general mainstream media, online media and Facebook itself it is hard to know just what is hype and what is reality. Even U2's Bono is in on the action !!!! Cue bizarre looking smoky shades.
Well, Facebook is expected to file a preliminary prospectus for an IPO today and prospective investors will find out whether the hype matches reality and the value that Mark Zukerberg and his mates at FB central have put on the popular social networking site.
I don't have to tell you the littered corpses of hundreds of tech companies that were going to be "the next big thing" that have gone before Facebook and only just a handful of them still remain.
One of course is Google Inc [GOOG.NASDAQ]which debuted in 2004 and has been a moderate success since. Google though, had and still has strong revenue streams and their market share is such that they dominate just about every business sector that they operate in. They are pretty much a dominant monopoly cash cow.
Facebook, when listed, would, in actual fact, have to go after Google advertising revenue - and win - to have a decent shot at long-term success.
Both Facebook and Google operate businesses in the fast moving, ever changing technology sector where Google has thus far cemented their place on the internet as a business but Facebook, while dominant in the social networking arena, could be subject at any time to a new technology start-up that removes that dominance in a heartbeat. Anyone remember MySpace?
Facebook may well be one of the notable exceptions to the tech disasters the markets have seen since the late 1990s but it would be one of the rarities if it did.
By all accounts, market watchers expect the company to be way overvalued and that really is a symptom of the hype surrounding the IPO and the expended demand as a result of that hype rather than the fact it is a good business worth investing in. Overvaluing an IPO of a company with an unproven business model seems to me to be a recipe for disaster, for initial investors in the public pool anyway.
In a once over lightly of facts and figures leaked from Facebook back in 2009 it showed revenue of US$ $1.24 billion and net income of $355 million for 9 months in the 2009 financial year. It is unclear whether this revenue has increased over the years or how much of that income has been spent on keeping Facebook going and growing but the IPO could be one of those nasty grabs for cash that happened during the dotcom frenzy of the 90s and may need to happen again if FB is to continue to grow.
The big winners are going to be Mark Zukerberg and the rest of the early investors in Facebook who will be billionaires or multi millionaires when the company lists and early participants in the IPO.
I am clearly very cautious about the Facebook IPO and will not press the "Like" button just yet.
My comments above will suffice.
Related
Download Facebook SEC Filing - Prospectus
Google: Has it lived up to its Hype?
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FB seems to be a good company as of now as Orkut looked once upon a time. It may happen that it continue to be at this level for longer duration but it is not certainly long tern affair to invest in it. Buy IPO and then keep on booking profits at shorter intervals. Dont think this issue as 5-10-15 years affair.
ReplyDeleteHi Darren,
ReplyDeleteI read this excellent piece this moring from John Shinal at Market Watch.
http://articles.marketwatch.com/2012-07-30/commentary/32936534_1_stock-compensation-charges-fasb-issue-stock
Very Interesting and applies to many many companies here in NZ too.