Wednesday, May 23, 2012

The Facebook-Party

A few days ago Facebook went public. What was announced to become by far the biggest IPO of a technology company, felt to me like the announcement of the regional party of the year - the one everyone talks about in advance and you just want to make sure, not to miss out on what might become a legendary event. Today, shortly after the party, as the big hype is over and the even bigger hangover kicks in, you are more often than not painfully forced to ask yourself, was it worth it? And why the disillusionment now? What went wrong? Or was it supposed to turn out like this? In the case of Facebook, I go for the latter.

First, what generally bothers me from an entrepreneurial perspective; Founder and CEO, Mark Zuckerberg stated in the course of the stock market launch that “Facebook wasn’t originally planned to become a public corporation”. The early aspiration was a social mission – “to make the world more open and better connected.” While he is clearly doing so with The Social Network, this statement leads me to the straightforward question; So, was a commercial approach then chosen in order to be able to more effectively fulfill this mission in the future? I rather doubt it and believe that, as it has often been the case, the original mission has to a certain extent given way to the credo “money rules the world”.

On the other side of the equation, new stakeholders have entered the network of Facebook. Shareholders like retail banks, investment firms and private and institutional investors jumped on the bandwagon in the hope of quick returns - at the forefront, a syndicate of major US banks, many of those who received government aid during the recent financial crisis. Side by side with Zuckerberg, they decided just before the IPO to push the hype further, issue 25 percent more shares than initially planned and raise the shares’ opening price considerably.

In the aftermath of the Facebook-Party, both Zuckerberg and the bank syndicate obviously made billions of dollars. Shareholders, on the other hand, are suffering a 20 percent-loss on day three after the party – big hangover. However, there were clear warning signals for investors. Thus, not only greed of initiators is to be blamed, but also the naivety and short-term thinking of their followers. Besides my delight that I missed out on that particular party, I’m puzzled about the incredible hype around an IPO, at the end, of an institution whose business model still remains in the dark and whose turnover and return figures have never been published as yet. Moreover, I regrettably feel that for both, the involved financial institutions as well as the unfortunate investors, after the party is, most likely, before the party.

Marc Moser

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