By Gery L. Deer
Deer In Headlines
Unless you live in a cave someplace, you probably heard that the Internet social media leviathan Facebook hit Wall Street with their initial public stock offering (IPO) on Friday, hoodies and all. Amidst the rock-concert type excitement over the event, the stock’s dismal performance seemed to leave everyone scratching their heads – except me.
No, I’m not some kind of Wall Street clairvoyant, nor do I consider myself any sort of expert on the subject. I do know tech companies, though, and I suggested a few weeks ago in another article that the Facebook public stock release would be a lot of buildup with no substance. Facebook might be the flavor of the month, but just around the corner there’s always another Mark Zuckerberg (Facebook’s founder, or thief, depending on which story you believe).
Not much happened after Zuckerberg rang the opening bell at the New York Stock Exchange. Trading of Facebook stock was delayed until just after 11:30 in the morning and then watching the Facebook stock ticker was a bit like looking at the slow motion replay of a horse race. You know they’re supposed to go faster, but they just poke along.
The company issued 421.2 shares of stock at an initial price of $38 and never really got much past that. With an intentional sense of irony, just a few minutes into trading, I used Facebook to publicly record my prediction that the stock would not exceed $45 a share – and it never did.
The second day of trading was actually worse. When the market closed on Monday, Facebook stock had fallen nearly 11 percent finally ending at $34.03. To say it was disappointing to Facebook followers is an understatement.
I’m not a financial expert, but I have done my fair share of day trading and information was always the best tool for choosing a stock. I honestly believe many people don’t understand how Facebook, and other businesses like it, actually earn money, thus giving them value. They bought in to be part of the fad, and now they’re paying the price.
I also think one of the biggest mistakes made by the financial pundits was to constantly compare Facebook to Apple – literally apples to oranges (pun intended). While Apple does offer some web-based services, at its core (another pun intended) the company sells a product, in fact it sells many different products – physical, usable, manufactured products with an understood perceived value – iPhones, iPads, software and computers.
Facebook, on the other hand, is like a free newspaper or magazine in that makes a great deal of its money from selling advertising space. Add to that the fact that Facebook has yet to establish a solid, profit-generating business model for the long term and you get a company that’s far too volatile to be compared to the likes of Apple.
Hype worked for Apple, in fact, for many years, it seems that most of the computer giant’s marketing plan consisted of Steve Jobs, a black turtleneck and a big empty stage. Facebook tries, and fails, to emulate that kind of drama and we saw a great example of that during Friday’s IPO. As of now, everyone who bought in has officially lost money.
Social media sites like Facebook make their money through advertising and licensing of patented or copyrighted applications (custom programming based on the website content). But if too many major advertisers bail, the company loses steam. Just before Zuckerberg rang the opening bell at the New York Stock Exchange on Friday morning, General Motors announced it was pulling all of its advertising from Facebook.
The exodus of the auto giant was bad news for the company’s bottom line, and shook its viability on the stock exchange. Losing GM cost the Internet behemoth much needed credibility and might have had an effect on the early underperformance of the stock.
In my humble opinion, the Facebook IPO was a publicity failure, but not necessarily a business failure. Still, Facebook will always be forced to outdo itself. But where do you go from up? We’ll have to watch and see. Oh yes, and don’t forget to LIKE me on Facebook!
Columnist Gery L. Deer is an independent journalist and business writer based in Jamestown, Ohio. More at http://www.geryldeer.com