Facebook's IPO Fallout - Research Paper Example

? Facebook’s IPO Fallout “Facebook was founded in 2004 by former Harvard Mark Zuckerberg” (Marshable, n.p The rest is history. At present they have more than 1 billion memberships from different parts of the world. No other IT company has grown as rapidly as Facebook in recent times. Even though Google like companies tried to stop Facebook’s progress with the help of Google plus like social networks, such efforts impacted only moderately upon Facebook. “Between 2009 and 2010, the company's revenue nearly tripled. In the first quarter of this year, revenue climbed 44 percent. In the second quarter, Facebook Inc.'s revenue increased 32 percent to $1.18 billion from $895 million a year earlier” (“Quarter earnings: Facebook stock crashes”, n.p.) Even though Facebook’s’ progress was untroubled until recent times, some of the most recent reports show that Facebook is facing some severe problems at present. The interests of people in Facebook shares have been diminishing slowly even though the company management is working hard to bring the company back on track. Facebook investor’s concern is about the slow revenue growth of the company in recent times. Even though recession like economic problems was almost over, Facebook still shows no signs of revival. Analysts expect lower revenue of $1.16 billion in the fourth quarter of 2012 for Facebook (“Quarter earnings: Facebook stock crashes”, n.p.). The decline of share value of Facebook has surprised many people. Even though such a decline was expected, nobody thought that it may take place in near future itself. Plenty of reasons were cited for the unexpected and sharp decline of share value of Facebook. This paper analyses some of the major reasons of the decline of the share value of Facebook. (Brown) “Since Facebook's initial public offering on May 18, 2012, the social network's valuation has fallen about 32%, from $104 billion to about $71 billion. The stock fell another 4% on Tuesday to $25.87” (Efrati & Tam). Analysts believe that Facebook shares worth only $ 19/share instead of $ 38/share. In other words, the actual value of the Facebook share is only the half of the buying price. Investors who bought Facebook shares @ $ 38 are currently in a spot of bother. They do believe that the company has cheated them. In short, the reputations of the company are getting damaged as time goes on. Some analysts believe that the macroeconomic conditions in Europe are the reason for the dip in the value of Facebook shares. It is a fact that Europe is currently undergoing through a bad patch. Some of the prominent members of the EU such as Greece, Spain, Italy and Portugal are facing severe economic problems at present. Therefore, the popularity of Facebook like social networks is declining in Europe. However, there is no logic behind blaming Europe alone for the problems facing by Facebook now. In fact Facebook failed change their business strategies based on the changes in the modern world. The most important reason cited by many people for the decline of Facebook share is its failure in concentrating more on mobile advertising. It should be noted that the popularity of smartphones and tablets is growing day by day and many people have already shifted their attention from laptops and desktops to tablets and smartphones for their computing needs. In fact the number of people who access social networks through smartphones and tablets are more or less same with the number of people accessing the same with computers. Facebook failed to forecast this changing trend properly. As a result of that they failed to develop a proper mobile platform for exploiting the possibilities and opportunities. More consumers are using smartphones instead of computers to access Facebook, and the company hasn’t figured out the best way to make money from mobile ads. The result has been a slowdown in the growth rate of advertising revenue: revenue expanded by 36% last quarter, compared with 69% in 2011.New attempts to tap the mobile market are promising—mobile ad revenue was virtually zilch at the start of the year, but now Facebook is earning approximately US$3 million per day. But not everyone is convinced the company can keep boosting revenue so easily (Big Loser: Facebook, n.p.) It should not be forgotten that advertising is the major revenue source for social network companies. Major companies are currently looking for opportunities in social networks to get direct interactions with the customers and promote their products. Offline promotions are ineffective compared to online promotions. As a result of that, MNC’s are using the services of social networks like Facebook, Twitter, Youtube, Skype etc more and more nowadays. Even though Twitter like social networks have already developed good mobile platforms to exploit advertising revenues, Facebook seems to be slow in grabbing the opportunities. Ball (2012) pointed out the loopholes in the advertising strategies of Facebook. In his opinion, “Facebook adverts can be targeted at specific groups of people in tiny areas, don't work nearly so well: one piece of research suggested Google adverts were 10 times more likely to be clicked on than Facebook ones” (Ball). Google's advertising works at its core through search whereas Facebook’s adverting is intended for a specific community. While using Google, advertisers can place their adverts against any word whereas Facebook offers no such flexibility. In short, advertisers get more out of their ads on Google than that on Facebook. “Facebook has made a habit of advancing its interests at the expense of its customers, whether by weakening its privacy policy, tracking users' movements around the Web or radically reconfiguring the way information is displayed on the site's pages” (“Facebook's Lucky Friends?”). Even in democratic countries protests against Facebook is growing. For example, in India, plenty of politicians accused Facebook for the intrusion into the private matters. Moreover, the contents published on Facebook from various sources are illegitimate in many cases. Many people believe that the possibilities of Facebook is exploiting by the antisocial elements to create communal riots in India like countries. For example, the pictures of man slaughter that occurred in other parts of the world are spreading through Facebook as the pictures of such incidents happened in India. Moreover, some politicians exploit Facebook for defaming political opponents. Facebook is not taking any responsibility for the contents and information spread through its servers. Their only intention is to increase the revenue as much as possible. “Some investors are accusing the company and its bankers of playing the public for suckers, sharing pessimistic revenue projections with a few insiders but not average investors” (Facebook's lucky friends?). It should be noted that Enron company management has misrepresented its financial data and cheated the public recently. Plenty of people believe that Facebook is following the track of Enron. In other words, the claims put forward by Facebook about their growth are unbelievable to many people. Such people argue that the claims made by Facebook are exaggerated and fabricated. In any case, it is a fact that the trust of the people upon Facebook is slowly but steadily diminishing. “In fact, much of the coverage leading up to the IPO was negative, with plenty of skepticism expressed about the company's revenues ever being large enough to justify the stock's price” (“Facebook's Lucky Friends?”, n.p.) Billionaire Saudi Arabian investor Prince Alwaleed bin Talal has revealed he had serious concerns about backing Facebook at the time of its IPO, saying he “did not feel comfortable from the beginning”. “[Facebook] was priced at an extremely high side at $38. When we invest in a company we like to get good returns for our shareholders. At the price of the IPO, I can tell you that we did not see good returns” (Denys, n.p.). The perception of the public or investors about the future of Facebook is evident from the words of Prince Alwaleed. It should be noted that the Prince had recently purchased Twitter shares worth $300m (?186m). In other words, the Prince has still confidence in the growth of social networks like Twitter. However, his confidence in the abilities of Facebook has been lost. When people purchase company shares, they will look for the possibilities of better returns. Many people believe that the growth of Facebook is already saturated and it is difficult for the company to grow beyond to certain point. As mentioned earlier, the membership of Facebook has already crossed the one billion mark. In other words, most of the educated people in this world have already a Facebook account. Facebook needs to target the uneducated or poor people for further growth. However, it is extremely difficult for Facebook to convince such people who give less importance to socializations while facing hard realities of life. According to Capstone analyst, Rory Maher, “of the 23 countries where Facebook’s penetration exceeded 50 percent, only nine expanded their user base over the past three months, while the remaining 14 countries either had fewer users or saw little change”(Strauss, n.p.). These statistics clearly suggest that the growth of Facebook is almost saturated in many regions now. Threats from the competitors are growing day by day for Facebook. Even though Facebook somehow managed to resist the threats from Google plus, new threats are appearing on the horizon from competitors such as Samsung, Yahoo etc. Both Samsung and Yahoo have already announced their intentions to enter the social networking business. It should be noted that Samsung is capable of raising strong challenges to Facebook. They are causing big problems to the most valuable technology company Apple at present. It is not so difficult for Samsung to cause big problems to Facebook. “One of the most visible expressions of public frustration and anger over the financial crisis and its lingering effects is Occupy Wall Street. More than one half (53%) of executives said Occupy Wall Street had an impact on their company's business” (“What Marketing Execs Blame for Banks' Bad Reps”, n.p.). Some analysts argue that the recent Occupy Wall Street incident has an effect on the declining share value of Facebook. The people took part in the Occupy Wall Street incident protested against economic inequality, greed, corruption and the undue influence of MNC’s on government. They believe that Facebook like big companies are exploiting the poor people with the help of politicians. It is a fact that politicians accept big amounts for election campaigns from MNC’s like Facebook. Such politicians will argue to safeguard the interests of MNC’s in the Congress. It is difficult to safeguard the interests of the rich and the poor at the same time. In short, poor people get nothing out of the policies framed by the Congress and, hence, they forced to fight against MNC’s like Facebook. Even though Bill Gates and Warren Buffet like wealthy people have shown readiness to distribute a major share of their wealth to the poor people, Mark Zuckerberg has not disclosed such intentions yet. In other words, many people believe that Facebook is not at all a socially committed company. Such impressions are causing big damage to the prospects of Facebook. The concerns about the security of using Facebook are growing day by day. many people argue that Facebook is misusing the private data collected from the users for various commercial purposes. Moreover, the frequent shut downs of the Facebook site creates suspicion about the security of the site among the users. The legal battle with ConnectU about the ownership of the concept of Facebook is going on. ConnectU argues that Facebook or Mark Zuckerberg has stolen their business idea. In short, privacy violation charges, legal battle with competitors, lack of respect towards sustainable development and corporate social responsibility etc are causing major problems to Facebook at present and shareholders or investors are thinking twice or thrice before investing in Facebook shares now. Facebook is using lot of third party applications for various purposes. They have no control or authority over these third party software applications. Moreover, they do not know the intentions of these application developers. It is believed that more than 50000 third party applications are there in Facebook. Those who trust Facebook’s ability to keep secret username and passwords should trust these third party applications also. It is quite possible that antisocial elements can exploit these vital information can cause problems to the users. In short, people are getting more awareness about the vulnerability of social networks. As a result of that they may reduce or limit their activities on social networks in future. In short, privacy and security concerns are damaging the business interests of social networks in general and Facebook in particular. According to New Yorker‘s John Cassidy “The I.P.O. system only works if it preserves a balance between public and private investors. “If this balance is upended, and virtually all of the rewards are reserved for insiders, ordinary investors will refuse to play the game”(Gustin). Facebook is a company in which concentrate only on private investment. Government or any other public agencies have no investment claims whatsoever in Facebook company. The intentions of private people are always motivated by the theme of profit making alone. In short, Facebook’s reputation has been damaged a lot in recent times because of its reluctance in implementing sustainable development practices. “The Financial Times recently reported social media usage is growing among financial services firms. These firms use Twitter more than Facebook generally (with Twitter increasingly functioning as a customer service channel) and use both services as recruitment tools” (What Marketing Execs Blame for Banks' Bad Reps). Even though the challenges from arch rival Google plus is not so severe, Twitter is currently causing huge challenges to Facebook. Zuckerberg never anticipated such a strong challenge from Twitter. He though that Google with its immense financial abilities may cause damage to Facebook’s interests. So, he took remedial measures to counter the challenges of Google plus. However, the main challenge came from unexpected corners and Zuckerberg had no answer to that. Some of the major architects of Facebook have already declared their intention to leave the company. “Marketing director Katie Burke Mitic announced that she was leaving Facebook after 2 years.  Jonathan Matus, Mobile marketing manager announced his departure as did Ethan Beard” (Brown). These reports are not spreading a good image about the future prospects of the company. If employees lose confidence in the company, how can the company expect an opposite response from the investors?. To conclude, Facebook is currently facing huge financial problems because of its dip in share value. According to economists, the actual share value of Facebook is almost half of the buying price. Facebook has exaggerated its financial data to increase its share value. Growth of Facebook is almost saturated in all parts of the world. Moreover, its advertising revenue is low compared to that of the competitor’s. Facebook failed to develop a mobile platform to exploit the advertising revenues from the smartphone and tablet market. Competitors such as Samsung and Yahoo are trying to establish their own social networks to cause further problems to Facebook. In short, the future of Facebook seems to be in jeopardy and that is why its share value is declining sharply. Works Cited Ball, James. “Facebook's IPO Fallout and The Problem With The Data-As-Profit Model”. Guardian.co.uk. 25 May 2012 “Big Loser: Facebook”. 2012. Web. 16 December 2012. Canadian business Brown, Eileen. “Facebook Share Price Continues To Fall”. 2012. Web. 16 December 2012. Denys, Harriet. “Prince Alwaleed rejected Facebook IPO”. 2012. Web. 16 December 2012. Efrati Amir & Tam Pui-Wing. “Debating Facebook IPO Fallout for Start-Ups”. 2012. The Wall Street Journal. June 6, 2012. “Facebook's Lucky Friends?”. Los Angeles Times. May 24, 2012. Gustin, Sam. “Facebook IPO Fallout: Four Lessons from a Rocky Public Debut”. 2012. TIME: Business & Money. May 22, 2012. Marshable. “Facebook – The Complete Biography”. 2010. Web. 16 December 2012. “Quarter earning: Facebook Stock Crashes”. Indian Express. July 27, 2012. Strauss, Karsten. “Facebook Users Decline Along With Share Price: Competition from Samsung?” Forbes. 7/18/2012 “What Marketing Execs Blame for Banks' Bad Reps”. 2012 . Web. 16 December 2012. Read More