Home Technology Facebook's IPO 10 years later — new title, identical CEO and a well-recognized drawback

Facebook's IPO 10 years later — new title, identical CEO and a well-recognized drawback

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Facebook's IPO 10 years later — new title, identical CEO and a well-recognized drawback

A decade in the past, Facebook advised the general public markets that it was pouring cash into smartphone apps as a result of cell utilization was key to the corporate’s progress, despite the fact that it did “not currently directly generate any meaningful revenue” on the time.

That was within the prospectus for its Nasdaq debut, which passed off ten years in the past Wednesday and resulted within the largest IPO ever for a U.S. tech firm. Facebook’s $100 billion-plus market cap immediately made it probably the most invaluable tech firms on the planet.

But inside three months the inventory had misplaced roughly half its worth because the market heeded Facebook’s warning. With shoppers flocking to smartphones earlier than there was a confirmed enterprise mannequin for advertisements on the small screens, buyers frightened that Facebook’s days of hyper progress have been within the rearview mirror.

We know the way that labored out.

Facebook is now greater than 25 instances larger by income than it was in 2012. And by 2018, over 90% of advert gross sales got here from cell. At its market cap peak in 2021, Facebook was value over $1 trillion, largely on the power of its core cell app in addition to Instagram and WhatsApp, which it acquired.

The firm now has a brand new title, Meta. And of the six prime executives from the times of the IPO, solely two stay: co-founder and CEO Mark Zuckerberg and Chief Operating Officer Sheryl Sandberg.

However, for buyers the dilemma appears fairly related. The expertise panorama is altering, and Zuckerberg is making one more bet-the-farm wager on the place it is going. Facebook mentioned in October it’ll spend about $10 billion over the subsequent yr creating applied sciences to construct the metaverse, a world of digital work and play that customers will entry by means of a headset.

Like in 2012, there is not any large present enterprise mannequin and no certainty that Zuckerberg’s imaginative and prescient will play out as he predicts.

“My concerns with regards to the metaverse are that investments are more akin to drilling for oil wells — you might come up empty-handed, you might strike it rich,” mentioned Brian Yacktman, chief funding officer of YCG Investments, which oversees greater than $1 billion in belongings. “I just question how large it will be and who will be the winners.”

The metaverse’s foggy future is only one cause the corporate’s inventory has dropped 47% since reaching its excessive in September, by far the worst efficiency among the many six Most worthy U.S. tech firms over that stretch. User numbers declined for the primary time ever within the fourth quarter and Apple’s privateness adjustments are hurting Facebook’s means to supply focused advertisements.

There’s additionally the reputational hit the corporate has taken since whistleblower and ex-employee Frances Haugen leaked inside paperwork exhibiting that Facebook is conscious of the harms its merchandise trigger, notably to youthful customers, whereas avoiding taking actions to repair them.

Yacktman nonetheless owns Meta shares, however his agency hasn’t added to its place in fairly some time. He says the sell-off displays the market’s view that the metaverse is a money sinkhole and little greater than a Zuckerberg plaything. Meanwhile, Facebook stays the clear No. 2 in U.S. digital promoting, a market that Insider Intelligence expects will develop virtually 50% by 2025 to $300 billion.

“They have a cash-gushing machine right now, and the market is ascribing zero value to the cash they’re burning for the metaverse,” Yacktman mentioned. In different phrases, he mentioned, the core advert enterprise is strong and “you have a free option on the metaverse.”

Record IPO

The final decade has been a wild experience for Facebook.

The firm’s IPO in 2012 was historic. Facebook raised $16 billion, the third-largest U.S. IPO ever, behind solely Visa in 2008 and General Motors in 2010. Within the tech trade, the largest as much as that time had been Agere Systems, which spun out of Lucent Technologies in 2001 and raised about $4.1 billion.

By the time Facebook went public, it was already one of many dominant manufacturers on the web, with over 500 million day by day energetic customers worldwide and $1 billion in quarterly income. Its valuation had soared on the secondary market, as a number of personal fairness funds, mutual fund firms and hedge funds bid up the value by providing hefty payouts to workers and present buyers.

Morgan Stanley led Facebook’s IPO, in a coup over Wall Street rival Goldman Sachs, however the providing did not go as deliberate. The firm raised the value vary headed into the providing, whilst inside considerations have been circulating about Facebook’s outlook for the second quarter and full yr. A gaggle of shareholders sued Facebook and Morgan Stanley for withholding materials data.

The Nasdaq additionally suffered what it referred to as a “technical error” that delayed the opening of Facebook buying and selling and saved some orders from being correctly fulfilled. The inventory completed its first day little modified and proceeded to plunge from there, starting with a 19% drop over the subsequent two days.

Facebook shares did not get better to their IPO degree of $38 till August 2013, greater than 14 months after their debut.

Kevin Landis, the chief funding officer of Firsthand Capital Management, watched the drama play out from his workplace in San Jose, California, about 20 miles from Facebook’s headquarters in Menlo Park.

Firsthand began shopping for Facebook shares within the non-public market in 2011, a purchase order that he mentioned “looked smart for about five minutes” till the inventory cratered after the IPO. He held that funding till about 2014, when the inventory had recovered and was buying and selling within the 70s.

Landis mentioned that, in one other of his funds, he began shopping for after the drop, when the inventory was within the 20s, and he rode that up till it hit about $200 across the time the pandemic began in 2020.

“The analysis was simple: Facebook was going to be a powerful ad platform,” Landis mentioned, referring to his preliminary thesis. The solely comparable mannequin was Google, and Facebook “could be worth a substantial fraction of what Google was worth,” he added.

Still, Landis mentioned he by no means bought a Facebook web page of his personal as a result of he loathed the lack of privateness that comes with handing over a lot private information.

“I broke one of my own rules — investing in something I thought was big, but without getting into it up to my elbows,” he mentioned.

It was a profitable guess. By the top of 2013, cell promoting accounted for 45% of Facebook’s advert income, up from 11% in 2012, proving once more that manufacturers observe eyeballs. Between 2013 and 2018, Facebook’s income progress averaged about 50% a yr.

The engine was so sturdy that even seemingly catastrophic information did not hassle Facebook’s financials. Following the 2016 election of Donald Trump as president, Zuckerberg repeatedly downplayed the position his website in performed in permitting for the unfold of disinformation and election interference by Russians. Then got here the 2018 Cambridge Analytica scandal, as experiences revealed that the analytics agency improperly accessed the info of 87 million Facebook customers and used it to assist Trump goal advertisements for the 2016 election.

Finally, the Haugen saga late final yr began with a collection of experiences within the Wall Street Journal and was adopted by tales from many different publications, detailing Facebook’s give attention to progress regardless of the unfavourable penalties of its merchandise.

‘Tremendously blended feelings’

Facebook’s habits has led to quite a few authorities investigations. Executives have routinely been referred to as to testify earlier than congress, and in September a number of U.S. lawmakers accused the corporate of following the Big Tobacco playbook, “pushing a product that they know is harmful to the health of young people,” within the phrases of Sen. Ed Markey, D-Mass.

The Haugen papers coincided with the top of the prolonged bull market rally for Facebook. But the tech sector broadly was additionally nearing its peak, and began retreating in November as considerations about inflation and rising rates of interest punished high-growth shares.

For Meta shareholders, the worst day on file got here in February. The inventory plummeted 26% following a weak income forecast and a $10 billion anticipated hit from privateness adjustments that Apple made to its cell working system to restrict advert focusing on.

Far from the speedy growth days of some years in the past, Facebook now faces a possible income contraction within the second quarter, damage by inflationary pressures and the conflict in Ukraine in addition to the surging reputation of video app TikTok, which is snagging customers and advert {dollars}.

“There’s nothing existential, they’re not going bankrupt and they’re not going to run out of money — it’s just not a very compelling story for the near future,” mentioned David Golden, a companion at tech funding agency Revolution Ventures in San Francisco. Facebook’s “viselike grip on the market has been significantly loosened with alternatives in social media and alternatives in other channels,” he mentioned.

Zuckerberg, who simply turned 38 and maintains management over his firm and its board, is not speaking a lot about social media and cell advertisements in any respect as of late. He’s all concerning the metaverse and Meta’s Reality Labs division, which racked up a lack of virtually $3 billion within the first quarter on income of $695 million, principally from VR headsets.

“It’s not going to be until those products really hit the market and scale in a meaningful way and this market ends up being big that this will be a big revenue or profit contributor to the business,” Zuckerberg mentioned on the corporate’s earnings name final month. “This is laying the groundwork for what I expect to be a very exciting 2030s when this is like — when this is sort of more established as the primary computing platform.”

Landis, who hasn’t owned the inventory in two years, says he is extra frightened than enthusiastic about Zuckerberg’s imaginative and prescient and sees an absorption in digital actuality as “highly dystopian.”

“My hope is that it doesn’t take over people’s lives, it just enhances people’s lives,” Landis mentioned.

Given how a lot Facebook is aware of about its customers and what the general public has realized in recent times about how the corporate handles information and privateness, Landis would not belief Facebook to do the precise factor.

“It’s impossible to look at that company and not have tremendously mixed emotions about it,” he mentioned.

WATCH: Meta is ‘probably the greatest belongings in shopper tech’ says Evercore ISI’s Mahaney

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