By Larry Teren
Ma called the other day to ask a question. Our conversation went like this:
Ma: what’s an IPO?
Me: oh, you must have heard about Facebook, the number one social media company. An IPO means an initial public offering. It’s when a company decides to open up ownership through stock shares to the general public and not just officers and employees of the company.
Ma: uh, huh. How come Facebook is in trouble with their IPO?
Me: ’cause the owners got greedy and tried to convince everyone that there was more value to the company than there truly was. You see, the Facebook owners figured that investors would value the shares up to $45 each. Usually, the company employees lock in at a lower price so they see immediate profits on their shares unless the price drops dramatically during the IPO. I don’t know how many shares were released to the public but they were hoping that outsiders would see enough value to make the company worth more than $100 billion dollars. Not bad for a social media company that had $3.8 billion in revenue last year and $1 billion in profits.
Ma: so, what happened? Is the company worth $45 a share now?
Me: no. The initial offering came out at about $35 to $38 a share. At last reading, it was down to $29. And some people think that the company withheld information on current sales and trends so that they could sell more stock the day it went public. Each day it has traded since the IPO, the stock has either traded down or at best sideways. And the bank that is acting as advisers to Facebook are being accused of providing insider information to a couple of Facebook officers to give them a chance to dump stock when it started its slide from the high of the day.
Ma: however you look at it, the stock is now worth more than $3.8 billion. Even at $80 billion, it has to be a big success.
Me: that is true but the question lingers for Facebook that with all this new infusion of cash, how do they go about making money on the business itself. TV networks and newsprint media rely on advertising. So does Internet giant Google and Youtube. Facebook has not figured out a way to get a good deal more of online advertising nor a way to get its 900 million users to pay for social media services without losing them.
They also have other issues which act as a turn off to users-
bad public relations such as the fiasco with the IPO and the story how one of the original owners (but no longer directly associated) ran away from the US to live in Singapore to reduce the income tax portion of the capital gains profit he will get from selling stock after the IPO.
they try to force users to adapt to the social media site the way they want them to as opposed to the way the users want to i a social network.
they are pushing use of a “socialcam” software product in which many videos can be viewed on
Facebook. The problem with it is that it can be a serious intrusion on one’s privacy. When you
first attempt to access it, there is a small checkbox next to a declaration that you give Facebook
the right to track ANYTHING you view using socialcam on any website and publish it on
Facebook. At the least, even without publishing it, it allows Facebook to keep a record of your
visits to any type of website that has no connection to them.
I like Facebook as a digital toy or hobby but not as a must-need item. I think most users do as well. If Facebook were to go bye-bye tomorrow, it would not be a nationwide crisis for social media. Others will take up the slack. But, I could be proven wrong and time will tell.