Finally, a Public Facebook
Moustafa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It has finally happened, the doves were released, the angels sang, the seas parted and Facebook (NASDAQ: FB) went public. We can now not only conduct our personal lives online but also own a piece of 900 million other people’s personal lives. The speculation has been rampant leading up to the IPO about how the stock was going to do. There were reports that Facebook had received a luke warm reception from major institutional investors. There were still retail investors who were buzzing about what was going to happen. Some saw the price doubling when it hit the market while others saw it contracting by half when it hit. In the end, when it was all said and done the price was a few cents over what it began at.
Notwithstanding, FB shares set a record for volume of shares traded on a first day and composed 21% of the daily activity on the NASDAQ composite. The day was anti climatic in the lack of volatility and share movement the most anticipated IPO in recent memory caused. Since then it is down over 15% and has been moving down since it hit its high during the middle of the trading day. NASDAQ bungled the initial start of trading and there has been a constant stream of updates and acquisitions since.
Historically companies would go public in their relative infancy to raise money to take the next big step or for their founders to be able to cash out. Comparing Facebook to most other large IPO’s even in the recent past doesn’t demonstrate much. The stock was already heavily traded on newly created secondary private markets. Buyers and sellers mimicked the public market by selling and buying private shares on exchanges like Second Market. Zuckerberg has already led Facebook from 0-100 billion dollars and at 27 has no apparent aspirations of going anywhere. Jeff Bezos would have been called crazy (and he often was) a decade ago if you predicted that Amazon would be putting Circuit City out of business selling everything from pots to electronics and would have a market cap of $97.8 Billion.
Facebook already has successfully created an engaged platform where users log on daily and check everything from messages, to games to status updates. Usually the most difficult and potentially profitable matrix for a technology company is user engagement. They have struggled at monetizing their mobile platform, but haven’t struggled getting users to use them in droves. Earlier this year Pandora (NYSE: P) had their shares tumble after a disappointing earnings call. Looking a little deeper, you see that Pandora is having similar issues monetizing their mobile traffic at the same time they grow their user base. If they were able to monetize their present mobile traffic base at even 25% percent more, they would have had a much different earnings report.
Betting companies will not be able to monetize these potential future revenues is betting against innovation, and as we have seen recently that’s usually a bad bet. Comparing Facebook to Google (NASDAQ: GOOG) especially at their IPO’s is like comparing apples and iPads. Google was a simple search engine that generated all of its revenues from online advertising, even with everything it has done, it still generates most of its revenue from this advertising. Facebook has begun monetizing its online ad streams, but also earns hundreds of millions of dollars from social gaming companies, most notably Zygna (NASDAQ: ZNGA). This is just an example of a revenue stream that very few people could have conceived several years ago. I would never have believed that people at any time would log onto Facebook and trade real world money for a suped-up tractor in Zygna’s famed Farmville game. I would venture to ask who would have seen a company that sells these goods having a market cap independently of Facebook over $5 Billion?
Moving forward I see Facebook being incredibly volatile especially around its first earnings report. Looking long term as we fools tend to do, I see Facebook as an ocean of incredible possibilities. Imagine if you could rent movies that your friends have liked directly off your phone streaming it to your T.V., find goods and deals recommended by your network and shop for them at fully functional Facebook eComm stores similar to those at Amazon among many other ideas. All or none of these ideas could become reality, but looking long term I know Facebook has many very smart people (much smarter than me) working on how to monetize their traffic and I see them being successful at it over the long term. Bearing in mind the short-term volatility I see Facebook as a good potential long term buy.
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