Saturday, August 18, 2012

What Facebook Inc (NASDAQ:FB) Failure Teaches Us?

The mess that is Facebook Inc (NASDAQ:FB)‘s stock performance brings to the fore one clear reality - that markets are the great leveller when it comes to companies, the vision of the founder, their ideas and the way forward.

When a company gets into the public arena and exposes its business model to a wider array of investors, analysts, that is when its true mettle is discovered.

Guest blogger on CNBC and CO-CIO of PIMCO, Mohamed El-Erian has written a brilliant piece on this on Friday.

"By going public in a highly-watched IPO last May, Facebook    illustrated two important functions of public markets: First, they allow companies to raise capital that is both "permanent" and non-debt creating, thus mobilizing the best funding for productive expansion; and second, they provide a monetization mechanism for founding management and staff, thereby incentivizing and rewarding successful entrepreneurship and risk-taking," Erian wrote.

Get Complete technical Analysis on FB Here

So long as Facebook was a privately held organisation, with a few large investors, who were mostly partners and allies in its business, each benefiting from the services of the other, the social network could do no wrong.

Its success was measured by the number of its users, who were growing every day and could actually were more than enough to populate a country of their own. It gave anonymous individuals living nondescript lives a platform to publicise themselves, irrespective of whether their friends or acquaintances wanted to see them or not.

It filled a void in people's lives, they did not even know existed. Individuals, businesses, corporations, causes, campaigns - for everyone it opened up a new way of intruding into people’s consciousness without being a nuisance.

As Erian observed, "It singlehandedly pushed out the frontiers of social media, creating and sustaining a phenomenon that many people, in virtually every country around the world, wished to be part of.

"Facebook was the hip employer, promising its staff innovation, status, wealth and a sense of mission. And, if all this was not enough, it was also redefining how businesses, governments and individuals interact."

However in the public domain, the yardstick to measure its success became suddenly different. It was as if the rules of the game had changed.

Its financial statements became open for analysis by critical eyes. Its revenue model was held laid open to merciless scrutiny. Analysts and investors wanted answers to uncomfortable questions - what was the company doing to add value to their investments? What was it doing to protect their interests as shareholders?

"Facebook's mystique and the related sense that it could do no wrong were replaced by the brutal reality of analyst's calls and downgrades," Erian pointed out.

Can FB Rebound Now? Find Out Here

And when Facebook could not provide the answers, the investors were quick to show their displeasure.

However for Facebook, it is still not too late. It can build on its enormous brand equity and good-will that it has generated to get back on track and infuse confidence amongst its investors and morale to its employees.

For other social media aspirants who are looking to go public, Facebook's experience should serve as an enduring lesson.


  1. they pick on facebook but when they ask to post their critics facebook is 1st; everybody uses it :)

  2. i feel Facebook going public is not the problem, Infact many were expecting and many wanted it. The problem is, Facebook went public with value it is not worth off or not justifiable. If this is not questioned, in a span of may be 2 years Facebook Mark can quote it for 10000 billion dollor and investors should get used to accepting it without any choice.

  3. A lot of people have seen the FaceBook phenomina. Their pages are still there but they never write anything nor rarely visit the site. The stock is still overvalued at $19. The true value of the stock is around $5, I fear. Those that are respomsible for the launch at $38 should be held to explain.


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