In our April 14th post “If Facebook Were a Country…” we hinted at the “irrational exuberance” that was being generated by the Facebook IPO. Since early April, MahaTweeter (The Marketing Id’s Twitter handle) had been trying to stand “athwart history, yelling ‘Stop!’” In any event, before we get to our Seven Doggone-Its of Highly Effective People (with apologies to Dr. Stephen R. Covey, Author of The 7 Habits of Highly Effective People®) involved in the Facebook IPO, we present a timeline (keeping in character with Facebook’s new look) of MahaTweeter tweets to make our larger point.
A couple of days after Facebook acquired Instagram for an ungodly sum, MahaTweeter fired a couple of warning shots, the first of which included a sarcastic reference to its “insta-acquisition”:
April 11, 2012 – Instawham: #social #media startup earns billion dollar valuation despite phantom cash flows from non-paying subscriber base of millions! #in
April 12, 2012 – Déjà vu all over again–financiers investing in fantasy business models that promise a #socmed utilization they cannot fully comprehend! #in
MahaTweeter followed up with a quote from our Aril 14th post to highlight Facebook’s ridiculously low revenue per subscriber and net income per subscriber numbers:
April 16, 2012 – #Social #media by numbers: FB generated $4.39 in revenue per active sub and $1.18 in net income per active sub in 2011. http://wp.me/p1zesw-8h
In late April, MahaTweeter wondered about the efficacy of advertising-based social media models in this tweet:
April 28, 2012 – The success of advertising-based #social #media models depends on how effectively those impressions transcend brand to generate demand! #in
By Mayday, seeing no discernible drop in Facebook fever, MahaTweeter warned:
May 3, 2012 – #IPO: It’s no #GOOG–without a plan to monetize its active subscriber base of photo-swapping millennials– #FB is all sizzle and no steak! #in
As FB’s IPO date drew near, some alarm bells finally started to ring. MahaTweeter read what Francis Gaskins, President of IPODesktop.com, had to say and tweeted accordingly:
May 7, 2012 – #Social #media bubble stress test on May 18th – meanwhile IPO expert warns of getting egg all over your #Facebook http://yhoo.it/J8jgm0 #in
The following day, MahaTweeter was tickled by the hoodie roadshow and remembered how even his hippie idol, Steve Jobs, had to clean up for Apple’s IPO back in December 1980. It resulted in a Bob Dylan and Dire Straits laced “MahaTweet” that would have hopefully made Jobs proud:
May 8, 2012 – The Times They Are A-Changin’–“don’t-judge-a-Facebook-by-its-cover” #WallStreet raises Money for Nothing during the #hoodie roadshow? #in
During IPO week, MahaTweeter fired daily warning shots as recounted below – even referencing a cautionary Wall Street Journal report on IPO eve:
May 15, 2012 – Caveat Emptor–unless #B2C #social #media demonstrates sustainable, long-term monetization model, we are headed for Internet #Bubble 2.0! #in
May 16, 2012 – Planets aligned for the big #IPO–Jupiter will spawn instant millionaires–but can #social #media reconcile with notion of capital gains? #in
May 17, 2012 – #FB #IPO: public investors rush in where private ones have fled–http://on.wsj.com/JklbRY –we Face growing pains, as they Book early gains! #in
Finally, MahaTweeter put out this deferential (to the markets) tweet on the morning of the FB IPO:
May 18, 2012 – #FB #IPO: When Social Met Capital–markets will now validate whether a billion non-paying subscribers warrant its $100 billion valuation? #in
After the disastrous debut of the Facebook IPO, MahaTweeter expressed relief in a rare Saturday tweet that at least there would be no social media bubble:
May 19, 2012 – All that glitters is not Google – #FB #IPO indicates dot com bubble redux unlikely; #social #media must learn to walk before it can run! #in
But then Monday after the IPO, we were disheartened to learn that the company that had made its name by encouraging people to share all sorts of information had actually withheld pertinent financial information relating to its future growth from the investing public! Even before the call for congressional inquiries had begun, MahaTweeter had one last blast on the subject:
May 22, 2012 – More egg over your Facebook–during hoodie roadshow, rev est. cut while IPO price raised–no wonder #FB is tanking! http://yhoo.it/KIzl4W#in
And so, here we are on Memorial Day weekend doing a post-mortem examination of the highly-anticipated, yet badly-botched Facebook IPO. Our intent is to present readers with what we referred to earlier as the “Seven Doggone-Its of Highly Effective People,” who were involved in some material way with this fiasco:
- TAS (Total Active Subscribers) is not equal to TAM (Total Addressable Market)! Infinity times zero is still zero–even in the new math! A billion non-paying subscribers can be active for several hours a day on their Facebook pages, yet not move the needle on company revenue. Typically, TAM is what businesses count on for revenue-generating opportunities, and investors are beginning to understand that TAS is not the same as TAM. Unfortunately, the highly effective analysts who rave over the social media juggernaut seemed to have missed this distinction.
- The Facebook Like has more social value than business value! It’s pretty apparent that Facebook’s legacy subscriber base (i.e., students from U.S. schools, colleges and universities), which indulges in the use of “likes” in its collective vocabulary, transferred that same sentiment pretty liberally through the use of Facebook’s infamous “Like” button. From a business perspective, if there is no easy way to monetize that Like, it offers very little redeeming value. Again, investors seemed to have figured out that the Facebook “Like” thus far has not been all that it is cracked up to be. So when will the highly effective social media quants come up with a measure already?
- Facebook not only made “friend” a verb but also devalued its meaning! According to HubSpot, an inbound marketing company, the average Facebook user has 130 friends. In the age of social media that might seem low, but The Marketing Id believes that is a high number of friends for the average Joe to have. Since its birth in a Harvard dorm room, Facebook has gradually blurred the distinction between friend and acquaintance. In fact, in the rush to appear popular (i.e., well-connected), Facebook subscribers are quite likely friending strangers. From a business standpoint, a non-celebrity subscriber is unlikely to influence the purchase decisions of such a “questionable” network of friends. The highly effective people that derived Facebook’s lofty valuation seemed to have based at least a part of it on an over-valued “friend” factor.
- Facebook squandered a “mobile in the hand opportunity for two PCs in the bush!” Facebook had admitted in its S-1 filing that it does “not currently directly generate any meaningful revenue from the use of Facebook mobile products.” This confession seemed to have not garnered a lot of attention prior to the IPO but gained some currency after the fact. This “revenue immobility” situation could be attributed to the fact that Facebook’s legacy subscriber base is likely more mobile than its newer and smaller desktop subscriber base from the business world – a possibility that seems to have eluded Facebook’s highly effective management until recently.
- Facebook’s “too much, too little, too late” platform strategy? The Facebook platform had been largely static (i.e., computer-based as opposed to mobile device-based) for five years until Instagram, which was hastily acquired (so it seemed) by Facebook’s highly effective management about five weeks before the IPO. Most social media pundits believed at the time that Facebook paid too much – $1 billion – to jumpstart its mobile strategy ahead of the IPO. Then on May 24th Facebook Camera was launched and Forbes suggested that “Facebook purchased Instagram to remove the competition.” It is unclear how Facebook Camera monetizes mobile, so even if the platform is great and may not be too late, it still remains a too little strategy from a business standpoint. Again, Facebook’s highly effective management needs to reconcile Instagram with Facebook Camera for a skeptical investing public?
- Facebook’s IPO roadshow violated its own mission statement! A company that wants to “to give people the power to share and make the world more open and connected” stumbled right out of the starting gate. It appears that during the Facebook roadshow, its lead investment bank, Morgan Stanley cut its second-quarter and full-year forecasts for Facebook and “shared” this vital information with only a handful of clients. It reminded The Marketing Id of that classical Orwellian line from Animal Farm – “All animals are equal but some animals are more equal than others.” This is a doggone it at the heart of the social media experiment, which needs to be addressed by the Chief Highly Effective Officer himself!
- NASDAQ’s embarrassing ~$100 million glitch over a $100 billion IPO! In the grand scheme of things, NASDAQ’s 20-minute black hole at the start of trading amounted to only 0.1% of Facebook’s market value at launch. The stars might have been aligned to spawn insta-millionaires as MahaTweeter had tweeted, but according to the Wall Street Journal, “The market-making arms of UBS AG (UBS) and Citigroup Inc. (C) suffered combined losses of about $50 million on trades made during last Friday’s glitch-plagued listing of Facebook Inc.” Any wonder that FINRA is investigating how the highly effective NASDAQ went dark on FB trades for 20 minutes – an eternity in today’s high-frequency trading environment!
So after a tumultuous week (ending May 25th) as a publicly traded company, FB stock closed 16% below its IPO price. Notwithstanding the seven doggone-its of the various highly effective people that we have outlined above, it might be still too early to judge whether FB shares had been priced appropriately for the IPO. Nonetheless, the fallout from the Facebook IPO has significantly reduced the risks of a bubble in social media stocks for the foreseeable future. Unfortunately, the foreseeable future always comes sooner than later in Internet time; so doggone it, we all need to be vigilant! Happy Memorial Day!