Now that Facebook has gone public, the $104 billion dollar question is this - what kind of future awaits the social networking giant on Wall Street?
A lot has been written about Facebook, its founder and CEO Mark Zuckerberg, and the company's $104 billion initial public offering on May 18. It was one of the most highly anticipated IPOs in years.
Investors wonder if Facebook will become another Google, whose stock has performed spectacularly since the company's 2004 IPO, or if it will go the way of Yahoo or Research In Motion, both huge Wall Street disappointments.
There is no question that Facebook's NASDAQ debut was anything but auspicious. After technical glitches delayed the IPO by several minutes, shares fell below the initial offering price, causing investors to wonder if the stock was overpriced.
Besides the public relations woes, Facebook and its underwriters may also find themselves in legal trouble. Underwriters reportedly shared key information about Facebook's potential earning power with select clients before the IPO - information that could have affected the stock price.
Facebook is big and resourceful enough to tackle the PR and legal problems. After all, the company raised $16 billion through the IPO.
The true challenge for the company is to deliver value to its investors over the long haul. On that score, Facebook is off to a bad start. So far, its stock looks more like the stocks of Yahoo or Microsoft, not Google or Apple.
Google has delivered returns that no one would have dreamt - going from about $104 a share during its IPO to $600 and up a share now. Apple, which was tottering around $25 some eight years back, reinvented itself with iPods, iPhones and iPads. Its share price now tops $500.
In contrast, more than 16 years after it went public, Yahoo's shares have dipped from more than $100during the tech boom to the $15-dollar range. Similarly, Microsoft is also not on as firm a footing now as it was a decade ago - nearly $30 a share now compared to $53 back then.
Investor enthusiasm for information technology and IT-related companies slowly and steadily waned because most firms have been unable to keep their share prices up. Luckily, there have also been some positives and big guns that are still enjoying solid runs despite the tough economy.
Then came Facebook, sparking sky-high hopes. So far, the stock has been a bust, but it is still too early to tell if that will remain the case.
Facebook, which generated revenues of $3.7 billion and made a $1 billion profit last year, was valued at $104 billion when it went public. This was due largely to the more than 900 million users, or more than 12 percent of the global population. When Google went public, it was valued much lower, around $23 billion.
That was not the only difference. While Facebook had $4.39 in revenue per user last year, Google earned $38 billion and generated $30 per user. The search engine giant is currently valued around $190 billion-$195 billion, whereas Facebook's valuation is dropping quickly.
Facebook faces economic headwinds it cannot control and internal challenges it can and must.
For instance, its advertisement revenue has been dropping from 98 percent of total revenue in 2009 to 85 percent last year. Advertisers across the board are spending less due to the sluggish economy and even the eyeballs Facebook brings are not enough to induce companies to spend more to advertise on the social networking site.
Reducing dependence on advertisement is not necessarily a negative thing, because Facebook can make up the difference by spurring its users to undertake more fee-based activities.
Yet, this could become a major problem for Facebook soon. Here is why: Tablet, book and mobile computing are on the rise, but Facebook is simply not equipped to cash in on this trend. Google and Apple score over others in this arena because they have their own ad platforms for mobile devices.
In December 2011, 425 million users accessed Facebook through mobile devices like iPhones. Without its own ad platforms for mobile devices, the company could face revenue losses as mobile devices continue to replace desktop computers. Facebook is aware it has a problem; the company has acknowledged apprehensions about its apps in filings with the U.S. Securities and Exchange Commission.
There are rumblings that Zuckerberg knew that Facebook would not fare well in the future even as he talked up the company's IPO. Allegations have surfaced that Zuckerberg offered for sale only non-voting shares so as to retain his hold on the company.
Google has consistently used its cash judiciously and engaged in mergers and acquisitions time and again to extend its presence very well. The company also used its research and development well to forge new paths rather than following its peers. Google also was nimble enough to take quick advantage of its rivals' weaknesses.
While it is still too early to say is Facebook will follow suit or stumble, one thing is clear - Zuckerberg should learn valuable lessons from Yahoo and Research In Motion, the Canadian maker of Blackberry devices.
Both started out well, but derailed after ignoring challenges in the rapidly changing tech sector. In fact, Yahoo gave everything to Google on a platter at great cost and is now desperately trying to reinvent itself. Likewise with RIM, which was a mute spectator to the smartphone onslaught by Apple and Google. RIM has been consistently losing its market share - even in Canada - and investors are skeptical of the new RIM smartphone's chances against Apple's well-established iPhone.
To be sure, Facebook is a different type of Internet company compared to Google, Apple, Microsoft, Yahoo and RIM. But if Zuckerberg wants his company to become more than just a social networking site, if he wants to compete head-to-head against the Googles and Apples of the world, he must closely study the successes and failures of prominent Internet and telecommunications firms. If not, Facebook risks fading into oblivion. (Global India Newswire)
(Frank Islam is the co-author of the book Renewing the American Dream: A Citizens Guide. He is also a member of the advisory committee of the US Export-Import Bank and the Department of Commerce Industry Trade Advisory Committee. His website is www.ffislam.com.)