"FB": End of an Era or the Beginning of a New One?
Upon the recent news of an imminent filing by Facebook to (finally) go public, a performance marketer quipped on one of the more prominent forums, “Well, there goes another good site.” It was an interesting observation and not in keeping with the mainstream press and business press whose comments sounded more like teenagers texting, “OMG. We cannot wait,” and “So excited.” Then again, maybe that was just the thousands of employees whose lives are about to change because they took slightly better than entry level jobs when their options totaled $50,000 only to see the company’s value increase by 10x, 20x, and in many cases 50x if not more. Wealth distribution in Silicon Alley is about to undergo a once in a generation shift, that it happened a mere eight years ago is even more telling of what constitutes a generation in the digital age.
No one ever doubted, well, no one in the last nine months, that Facebook would not only go public but have a potentially record breaking public offering. The just released details more than support such a belief. The hardest part of this whole process is coming to terms with the actual magnitude of the offering, that is to properly appreciate what we are actually witnessing. We’ve become so used to big numbers, so numb to enormity that we almost cannot appreciate what we get to experience, even if, for almost all of us, what we experience is others’ joy. About that joy. By selling only a small percentage of shares to the public, Facebook would still take in upwards of $10 billion. That is six times more than Google did when they went public in a similarly anticipated offering. Facebook’s IPO has the very real chance of not only being the largest internet IPO (it will) but the largest US based company IPO.
No matter how hard we try, we cannot put the Facebook numbers into perspective. We cannot quite understand what it must be like to have a business that touches 400mm plus users daily and will soon touch almost something like one half of all the internet users. Other statistics become known during these processes not the least of which include their actual earnings, in this case $3.71 billion in revenue and $1 billion in profit. Even these numbers are hard to really comprehend. Is it a lot of money? At $10 million in revenue per day it surely is, but then again, Google made ten times this amount yet their company will be valued at less than two times Facebook. Apple, the most valuable company in the world right now will be worth just over four times what Facebook would be. As for earnings, Apple made somewhere around 40 times what Facebook did.
When Microsoft went public in 1986 it had a market cap of $529 million. Today, it does not trade anywhere near its high, yet even today it still trades about 40 times what it went for initially. Google went public at just north of $23 billion. Since going public just seven years ago, its stock has increased more than eight times, being as high as ten times. Apple is a harder nut to crack, but it has conservatively increased more than 50 times. Amazon when it went public in 1997 raised a mere $54 million with a market cap of $438 million. Today, the company has a market cap of more than 80 billion, a 20x return in a tumultuous past 14 years. This is how we think of Facebook. In seven years time will an investor make almost ten times the money? Will they make 20 times in 14 years? We know that Mark Zuckerberg will be worth almost $30 billion in a few weeks though.
For us, this process has two themes. One is the broken nature of today’s IPO. Instead of going public too early, they are going public too late. The result is the same. The public still shoulders a lot of the risk without getting to see the upside. remember when people laughed at Microsoft for investing in Facebook at a valuation of $15 billion? There are lots of people who would have liked to take that gamble but couldn’t. They will know just because this is one of the few public companies that the average person really identifies with, but their impression of the company and where in its lifecycle it went public are completely uncorrelated. The second theme has to do with what makes for a big company. Apple is the world’s best today, and its focus on being the dominant brand who makes the most in demand items is a bold and successful play. Yes, Amazon is viewed as still the bigger growth play because they control a piece of all of online shopping.
If Facebook can figure out Apple’s earnings but Amazon’s multiple, it might have the chance to give the upside to the very users that have made it the success it is today. That would make it an even better success story, and it would make Mark Zuckerberg the first person worth more than $100 billion. As a good friend wrote, I’m a buyer at $75 billion. He’s probably right, but like our super affiliate friend, we can’t help but feel slightly left out given that we knew the company had potential at a $5 billion valuation. Unfortunately, we didn’t have a way to place bets. Buying and selling their ads is a poor substitute to buying into the upside of the entire company.
