Facebook IPO: Hit or Miss; Want to Invest, here are some considerations

Facebook IPO is turning out to be one of the most popular public offerings since at least a decade now.

The price range had been increased from between $28 to $35 to between $34 to $35. The cut-off has been decided at the mid-point of the price range at $36. This gives the company a valuation that rivals Amazon and one which exceeds that of HP and Dell put together. However, before investing, you need to consider the following.

Management and Administration:

Mark Zuckerberg is known to make quick but volatile decisions. It almost appears as if his decision making is influenced by an underlying anxiety of being faced with a situation where the revenues are declining and the targets are missed. (Eg. Facebook VideoChat after Google+ Hangout launch and Instagram Takeover before Twitter could acquire it)

Of course he doesn’t want Facebook to be another sinking ship like Yahoo or RIM. Not too long ago he had hastily taken the decision of acquiring Instagram, and again this decision was taken by Zuckerberg solely without the involvement of the other Board of Directors at Facebook.

Here, Zuckerberg is the single largest shareholder who holds more than 50% of the shares and hence, he has the ability to override or veto the decisions taken by his board.

Not to mention, the decisions after the IPO, will solely be for Profit and not to CHANGE THE WORLD TO BE A BETTER PLACE AGENDA.

Interesting: Facebook to acquire Bing from Microsoft, What happens if that happens

Challenges:

1. Users may not always like the changes that are introduced:

Consider Timeline.

While Timeline contributes immensely towards a rise in Average Revenue per User (ARPU), this is one feature which most users hate and wish that it did not exist. Likewise there may be other features as well that may not go down well with the users.

2. Increasing use of Smart Phones, no way YET to monetize:

The greatest threat for Facebook is the increasing use of mobile phones. It’s ironic that Faacebook’s mobile app offers users a timeline free experience. Facebook is yet to figured out a way to generate revenues from its smartphone-based users. Considering that about 30% of the traffic is via Facebook for mobile, they need to find a way to monetize it.

3. Competition from Google:

Facebook relies solely on Ads for revenues. Yet, Facebook has not been able to optimize the resources it has to it’s advantage. It has the information of the users, but definitely not the advantage that Google has with its Adsense. Google Ads are more relevant both contextually and interest based, Plus there are Million plus websites where Google Ads are strategically places to ensure maximum conversion

Facebook advertisements on the other hand work more like brand building. For instance, I won’t go to Facebook to apply for a loan from Citibank or to Buy a Car.

Facebook has already received a shocker from General Motors, who has decided to stop using Facebook as a medium for sales and marketing, citing a lack of effectiveness.

This would have been the last thing Zuckerberg would want to discuss just before the IPO, leave alone the embarrassment caused.

Facebook IPO may have been over subscribed, but still it hasn’t got the response that may have been anticipted.

Social networking is a phenomena that looks unstoppable. However, unlike users, investors are not someone who would get addicted. Investors would stay invested only until better opportunities arise and they will constantly be in the lookout for etf investing opportunities.  So if you are an investor or a trader who has subscribed for Facebook IPO, be sure to book profits at the right time.

P.S.: 50% of Americans think Facebook is a Passing Fad, check out the Mashable Article about it.

Related: Eduardo Saverin gives up his US Citizenship, save taxes (US$600million) before the IPO

You may also like: Life After IPO, Who owns how much share in Facebook

The DNetWorks Team