A decade ago, Facebook told public markets that it was pouring money into smartphone apps because mobile adoption was key to the company’s growth, even though it was “currently not generating any significant revenue” at the time.
It was in the prospectus for its Nasdaq debut, which took place a decade ago on Wednesday and resulted in the largest-ever IPO for a US tech company. Facebook’s market cap of over $100 billion immediately made it one of the most valuable technology companies in the world.
But within three months, the stock had lost about half of its value as the market heeded Facebook’s warning. When consumers flocked to smartphones before there was a proven business model for small-screen ads, investors feared Facebook’s hyper-growth days were in the rear-view mirror.
We know how it worked.
Facebook is now more than 25 times bigger in revenue than it was in 2012. And through 2018, more than 90% of ad sales came from mobile. At its peak in market cap in 2021, Facebook was worth more than $1 trillion, thanks largely to its flagship mobile app, Instagram and WhatsApp being acquired.
The company now has a new name, Meta. And of the six top executives from the IPO era, only two remain: co-founder and CEO Mark Zuckerberg and chief operating officer Sheryl Sandberg.
For investors, however, the dilemma is quite similar. The tech landscape is changing, and Zuckerberg makes another firm bet on where he’s going. Facebook said in October it will spend about $10 billion over the next year developing technologies to create the Metaverse, a world of virtual work and play that consumers will access through a headset.
As in 2012, there’s no great existing business model and no certainty that Zuckerberg’s vision will materialize the way he predicts.
“My concern about the metaverse is that investing is more like drilling an oil well — you could end up empty-handed, you could get rich,” said Brian Yacktman, chief investment officer of YCG Investments, which has over $1 billion in assets assets managed. “I’m just wondering how big it’s going to be and who the winners are going to be.”
Metaverse’s bleak future is just one reason the company’s stock has fallen 47% since its September peak, making it by far the worst performer among the top six U.S. tech companies. User numbers first declined in the fourth quarter, and Apple’s privacy changes impacted Facebook’s ability to serve targeted ads.
There’s also reputational damage for the company, as whistleblower and ex-employee Frances Haugen leaked internal documents showing Facebook is aware of the harm its products are causing, particularly to younger users, while avoiding taking steps to do to fix them.
Yacktman still owns Meta stock, but his company hasn’t expanded its position in quite some time. He says the sale reflects the market’s view that the Metaverse is a money pit and little more than Zuckerberg’s toy. Meanwhile, Facebook remains the undisputed No. 2 in digital advertising in the United States, a market that Insider Information predicts will grow nearly 50% to reach $300 billion by 2025.
“They have a money-hungry machine right now, and the market doesn’t value the money they’re burning for the metaverse,” Yacktman said. In other words, he said the core business with ads is solid and “they have a free option for the metaverse.”
The past decade has been a wild ride for the company.
The company’s IPO in 2012 was historic. Facebook raised $16 billion in the third largest US IPO, behind only Visa in 2008 and General Motors in 2010. Within the technology industry, the largest company to date has been Agère Systems, which spun off from Lucent Technologies in 2001 and about 4.1 brought in billions of dollars.
When Facebook went public, it was already one of the dominant brands on the internet, with more than 500 million daily active users worldwide and $1 billion in quarterly revenue. Its valuation had skyrocketed in the secondary market as a variety of private equity funds, mutual fund firms, and hedge funds pushed up the price by offering large payouts to existing employees and investors.
Morgan Stanley led Facebook’s IPO in a swipe at Wall Street rival Goldman Sachs, but the offering didn’t go as planned. The company increased the price range ahead of the offering despite internal concerns about Facebook’s second-quarter and full-year prospects. A group of shareholders are suing Facebook and Morgan Stanley for withholding essential information.
The Nasdaq also suffered what it called a “technical glitch” that delayed the opening of trading on Facebook and prevented some orders from being properly filled. The stock ended its first day little changed and then plummeted, beginning with a 19% drop over the next two days.
Facebook shares only recovered to their IPO level of $38 in August 2013, more than 14 months after their debut.
Firsthand Capital Management chief investment officer Kevin Landis watched the drama from his office in San Jose, California, about 20 miles from Facebook’s Menlo Park headquarters.
Firsthand began buying Facebook stock on the private market in 2011, a purchase it said “felt smart for about five minutes” before the stock plummeted after the IPO. He held that investment until around 2014, when the stock rallied and traded in the ’70s.
Landis said he started buying another of his funds after the decline when the stock was in the 20s, and he rose until it hit about $200 at the start of the pandemic in 2020.
“The analysis was simple: Facebook should become a powerful advertising platform,” Landis said, referring to his original thesis. The only comparable model is Google, and Facebook “could be worth a significant fraction of what Google was worth,” he added.
Still, Landis said he never had his own Facebook page because he hated the loss of privacy that comes with handing over so much personal information.
“I broke one of my own rules — I invested in something that I thought was big but didn’t quite make it,” he said.
It was a lucrative bet. At the end of 2013, mobile advertising accounted for 45% of Facebook’s ad revenue, up from 11% in 2012, proving once again that brands follow the eyeballs. Between 2013 and 2018, Facebook’s revenue growth averaged around 50% per year.
The engine was so powerful that even seemingly catastrophic news didn’t strain Facebook’s finances. After Donald Trump was elected president in 2016, Zuckerberg repeatedly downplayed his website’s role in spreading disinformation and election interference by Russians. Then came the Cambridge Analytica scandal in 2018, when reports surfaced that the analytics company had unlawfully accessed the data of 87 million Facebook users and used it to help Trump run ads for the 2016 election.
Finally, the Haugen saga began late last year with a series of reports in The Wall Street Journal, followed by articles from numerous other publications detailing Facebook’s focus on growth despite the negative consequences of its products.
“Extremely mixed feelings”
Facebook’s conduct has led to numerous government investigations. Executives were regularly summoned to testify before Congress, and in September several US lawmakers accused the company of following the Big Tobacco Playbook: “Promoting a product they know is harmful to the health of young people.” , said Sen. Ed Markey, D-Mass.
The Haugen minutes coincided with the end of the extended bull market rally for Facebook. But the technology sector as a whole was also nearing its peak and began to retreat in November as concerns about inflation and rising interest rates weighed on high-growth stocks.
February was the worst day on record for meta shareholders. The stock fell 26% on weak revenue forecasts and an expected $10 billion impact from privacy changes Apple made to its mobile operating system to limit ad targeting.
A far cry from the days of rapid expansion a few years ago, Facebook is now facing a potential second-quarter revenue slump amid inflationary pressures and the war in Ukraine, as well as the growing popularity of video app TikTok, which hooks users and ads. Dollar.
“There’s nothing existential about it, they’re not going to go bankrupt and they’re not going to run out of money — it’s just not a very compelling story for the near future,” said David Doré, a partner at technology investment firm Revolution Ventures in San Francisco. “Facebook’s hold on the market has been significantly eased by alternatives on social media and alternatives in other channels,” he said.
Zuckerberg, who just turned 38 and retains control of his company and board of directors, doesn’t talk much about social media and mobile advertising these days. It’s all about Metaverse and Meta’s Reality Labs division, which posted a nearly $3 billion loss on revenue of $695 million in the first quarter, mostly from VR headsets.
“It’s only when those products really get to market and scale significantly, and that market ends up being big, that it’s going to be a big contributor to the company’s top line or bottom line,” Zuckerberg said during the company’s earnings release last month. . “It lays the groundwork for a very exciting 2030s, if that’s the case – if it’s established as the primary computing platform.”
Landis, who hasn’t owned the property for two years, says he’s more frightened than excited by Zuckerberg’s vision and sees inclusion in virtual reality as “highly dystopian.”
“My hope is that it doesn’t take over people’s lives, it just makes people’s lives better,” Landis said.
Given what Facebook knows about its users and what the public has learned over the past few years about how the company handles data and privacy, Landis doesn’t trust Facebook to do the right thing.
“It’s impossible to look at this company without having extremely mixed feelings,” he said.
SEARCH: Meta is “one of the best assets in consumer technology,” says Mahaney of Evercore ISI
#Facebook #IPO #years #CEO #issue #Reuters #news #France