Facebook IPO called a risky business model since friends seem to fade away

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The Facebook IPO is risky business, say economic experts, because “you are the product that’s being sold.”

“It’s a message from Facebook, saying how much they value our privacy,” while the reply is: “Yeah, they value it at nearly $40 a share,” stated a cartoon by Jimmy Margulles that ran in national newspapers Friday when Facebook stock was first offered. Today, May 19, after the dust has settled on the $16 billion Facebook IPO, financial experts are saying “it doesn’t come without risks.” In fact, a special business page report in the May 18 edition of USA Today explained how the Facebook stock was priced at $38 a share for this eight-year-old social-networking company, and “fronted by hoodie-wearing, 28-year-old CEO Mark Zuckerberg” – with the view on Wall Street is the IPO is raising both billions and “eyebrows of some investors.” The USA Today report went on to explain how Facebook is “now worth more than Disney, Ford and Kraft Foods; and it would be the second-largest U.S.-listed IPO behind only Visa.” Thus, with big bucks on the table, Facebook fans are like lemmings in their pursuit of stock that “has investors on edge,” reports USA Today, because “going public means Facebook sacrifices some financial flexibility and will raise questions about its financial bona fides.”

In turn, USA Today reported May 19 how the Facebook stock “opened at 11:32a.m. Eastern time at $42.05 but soon dipped to $38.01. By noon, it was up to $40.40, a 6 percent increase. It fluttered throughout the afternoon but never hit the double-digit jump that many Facebook-watchers had expected. By the end of the trading day, more than 500 million shares had changed hands.”

Still, the consensus from Wall Street experts is the long view on Facebook stock is risky business.

Zuckerberg tries to ease fears as he gets richer

In turn, such concern was raised “in a letter Zuckerberg wrote in the company’s registration statement, in which he vowed to continue to operate Facebook as if it were a private company.”

“Simply put: We didn’t build services to make money; we make money to build better services,” wrote Zuckerberg, who controls 55.8 % of the company stock voting rights.

While this 28-year-old Facebook billionaire may be indifferent to the needs and wants of his new investors, the USA Today report explained how “after two years of soaring growth, the number of gamers on Facebook languished in 2011, says market researcher HIS. At the end of 2010, about half of Facebook’s monthly active users played games. By early 2012, that number had plunged.”

Facebook uses your privacy as its commodity

While Facebook “must be careful not to share too much of its members’ data with eager marketers and advertisers,” report USA Today May 19; there are those who feel this could be the company’s undoing as more and more privacy issues bring the value of the Facebook stock down and down in the months to come.

“Facebook has a database filled with information about 900 million users,” social-marketing expert Allie Kline told USA Today. “That’s a lot of power.”

Kline is chief marketing officer at 33Across, a social-marketing analytics company that’s watching Facebook stock closely as privacy as a commodity may soon become an even more serious issue for Facebook investors who feel Facebook’s “power” can “only go down as privacy issues continue to be raised,” added experts speaking on national media news programs May 19.

In turn, Cord Jefferson, a senior editor at GOOD magazine, wrote an editorial in the May 18 of USA Today stating how “Facebook isn’t free.” The editor went on to explain how “the best way I’ve ever heard Facebook’s business model described is simple: ‘If you’re not paying for it, you’re not the customer; you’re the product being sold.’ What makes Facebook so valuable is that you, your friends, and everyone else who uses the site are sitting ducks for marketers out to exploit your information to sell you things.”

At the same time, Jefferson told USA Today that “if you can picture a party that’s secretly a corporate focus group, you’ve got a pretty good idea of what Facebook is. It may seem strange to you that a product that’s free to users could also be worth nearly $100 billion, but it’s important to remember that Facebook isn’t free: You’re selling your time, attention and ideas to corporations every time you log on.”

Facebook has many less attractive features

While Jefferson and other warns Facebook investors about the possible downfall of this social-networking company that’s already peaked, the USA Today editorial for May 18 also warned those not so savvy about such things as Facebook that there’s many other “less attractive features” that makes this stock offering risky business.

For instance, the USA Today editorial warned how Facebook “contributes to the many digital addictions that people are developing, while creating a false sense of friendship and connection as actual relations wither. And, as the need to monetize its vast audience has grown, Facebook has shown a heightened willingness to annoy its users and monitor their online interests.”

Moreover, the editorial asserted: “If privacy is becoming a thing of the past, Facebook is in the vanguard. Its vast banks of information on its users’ habits, associates, likes and dislikes are benign only until a whim, a profit incentive or a government demand makes the threat malignant. China and Iran already monitor social networks to identify dissidents.” Thus, financial experts are saying “why the heck invest in Facebook when it’s clearly risky business?”

Image source of Facebook CEO Mark Zuckerberg, 28, wearing a suit and tie while explaining his Facebook business model to President Barack Obama during a Feb. 17, 2011 meeting in California. Photo courtesy Wikipedia http://en.wikipedia.org/wiki/Mark_Zuckerberg

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