Facebook share price flop: If I was CEO, I’d give each user a share
Facebook’s share price has dropped from a high of $45 to $34 a share, wiping billions of dollars off the price of the company. It has also put a question mark over the social networking bubble which has seen others such as Zynga (that makes FarmVille) and Groupon drop significantly over the past few months. Only LinkedIn is worth more than it was when it debuted.
The loss in value for the company has a lot of causes, not least that the offer price was upped by around 25 per cent just before the company went public. Investors like to see that their shares rally in value immediately after a company goes public – the ideal is around a 15 per cent increase. This hasn’t happed with Facebook at all.
At one point on Friday, German investors were offering as much as $70 per Facebook share. But if they did get their hands on the shares, they wouldn’t have much to smile about.
When Google floated, there was a huge demand for its stock, heavily influenced by a mass public uptake of shares. A lot of Google users bought shares because they understood how the company made money – from the adverts that they clicked on. When it comes to Facebook, the revenue is less clear cut. But what is clear, is that it is heavily based on the collective value of the data that Facebook holds on its nearly one billion users.
Those users have effectively just been sold to Wall Street banks that now hold significant stakes in the company. One must now question how it changes the public perception of Facebook as an entity. I’m still wedded to the service and there’s a lot to keep me hooked on it, but I’m not spending money on it. I’m also marginally uncomfortable with the knowledge that it’s because of people like you and me, that it is worth so much. Some investors have been worried that this feeling might mean users stop logging on, or sharing as much.
The Ben Cohen business plan
So what would I have done differently? Something quite simple and something that was a nice little trick in the UK’s original dot.com boom. I would have part mutualised the business. In other words, I would have given each Facebook user one (non-voting) share in the company, at a notional value of $38.
Why would I have done this? Mutualising the business would have been cheap for a number of reasons. Each user was worth around $100 to Facebook’s floatation value. The users are its life blood. Yes there would have been significant dilution of the existing investors as a result of the share issue but less than double the 25 per cent fall in value that some shareholders have experienced since Friday.
I think that the market capitalisation would have been even greater. If you were given a share worth $38, it’s unlikely that unless you were mega-short of cash that you’d actually sell the stock – it just wouldn’t be worth it. You’d hold it in the hope that it would be worth significantly more in the coming years.
As a shareholder in the service that owns your data, the notions of responsibility and complicity would be held in the way that Facebook monetises your data changes. It would be monetising your data for your benefit as much as for Morgan Stanley, Goldman Sachs or Mark Zuckerberg’s future children.
As a shareholder in the service, you’d be unlikely to leave, or to reduce the amount of content that you share on the service. While you won’t grow rich from it, you would still be tied in. Much more so the current situation - that too many of your friends and family use Facebook for you to jump ship over to Google+ (which after all is equally owned by Wall Street banks and venture capitalists).
By knowing that users aren’t as motivated to move or that the increasing commercialisation of the site would offend them, the perceived value of Facebook to investors would in my mind increase.
Facebook is a great product and it will in time prove itself as a great public company. But the share price jitters have suddenly changed the narrative of what has been a historic and meteoritic rise to success.
There are 5 comments on this post
The Facebook share price drop is no surprise: most of the bookrunners have tried to get rid of 50% or more of their allocation and no institutional client bothered to touch it. The fact that this was a retail hype – pure muppet bait
Don’t know what you base your last para on. Me – never been on Facebook and have no intention of joining. Silly, but I recoil from its very name – reminds me of the ugly phrase ‘in your face’. I’ll let others take the pics, and stick to Twitter. Your point about mutualisation well-made, though. Agree wholeheartedly but, hey, Zuckerberg’s a C21 capitalist.
The main use I have for Facebook is to correct libels I hear about from people who have TV.
I am not even sure the people I meet out and about, usually in pubs, are telling me the truth about the TV libels.
No form of official communication has ever been made to me about any news paper publication or TV broadcast and I have never read and article or seen a broadcast.
However I do know for a fact that everything I put on my Facebook page is 100% accurate and factual.
I think this was planned. Before facebook was floated there was a story in the news about facebook introducing charges. The day after facebook was floated it was announced that there was a $15 billion lawsuit against facebook. The whole thing was a scam.
Benjamin,
There pops yet another stock exchange casino bubble.