Facebook is poised to launch its first IPO valued at $10 billion. Interestingly enough, this will beat Google’s IPO back in 2004 worth only $1.9 billion. Currently being a private company, Facebook doesn’t have to publish it’s accounting records, but it a report surfacing back in January of 2011 claims that Facebook made a net profit of $355 million on revenues of $1.2 billion in the first nine months of 2010.
That’s a lot of Farmville action! In reality, Facebook makes most of its money from advertising. Even I have helped line their pockets with profits after running a test ad campaign for my site. It didn’t go so well in bringing in the traffic I expected, but the learning experience was worth it.
Tech companies have come and gone. The Internet is a vast black hole of successes and failures. What makes Facebook so popular? How did it come to be the focal point for an average person’s day? When did breaking up with a significant other only become “official” when it’s been posted on your Wall? That’s the most interesting thing about Facebook…how it has become such a daily process for many of us who log in to check on the world.
I bring all this up because while Facebook does have a monetary value, it’s core value is how the people feel about it. A regular corporation in the world generally has products to sell and it’s those products that create a fan base which generates loyalty and most importantly, repeat business.
The problem with Facebook is that it relies only on it’s membership to generate advertising dollars. While this is of course a substantial number, all of it could go away if the people no longer want it. Look what happened to MySpace.
We’ll have to wait and see how this IPO actually works out, but unless the stocks are cheap, I probably won’t be owning any.
My two cents
Like I said, it’s hard to valuate a company who’s only existence comes from the users themselves. We’re already seeing massive account deletions due to the forced Timeline feature that is set to go into effect within the next week. Above that, people are leaving due to privacy concerns, creepy stalkers online, a natural decline in popularity, etc.
It’s one thing to buy stock in a company that produces products that can be re-invented when current styles and fads fade away, but how much more can Facebook offer? In my opinion, they already offer too much. I never play games on there, I never click on any ads, I hardly post wall updates and of the 1000+ friends, I probably only really know about 100 of them. My point is that Facebook is a fad just like every social networking site out there. I’m not saying they’ll be gone in a year or two, but I can’t see them re-inventing themselves too much more.
No matter what, I’m still excited to see the IPO results.