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Facebook IPO to beat Nasdaq record

by on18 May 2012

Investors and analysts start to look beyond the hype

The Facebook IPO has been the talk of the industry for months and now we are finally starting to see all the hype pay off for Mark Zuckerberg and everyone involved Facebook team, provided their last name is not Winklevoss.

Facebook hopes to raise USD 16 billion in the great float and its value has been estimated at over USD 100 billion, give or take a few billion depending on whom you ask. Analysts believe Facebook will easily go down in history as the biggest IPO to date.

However, some analysts and investors are trying to look beyond the hype. While the Google IPO in 2004 was equally impressive for its time, the Facebook IPO is looking at a transformed market and a much more volatile economy. The company itself has a much different, albeit potentially very profitable business model. However, even before its IPO Google did a lot to diversify and become much more than a search engine and expand in different directions. Facebook did not.

Today Google search has a ubiquitous presence in our lives, Google is much more than a search engine, it a verb, a service, a smartphone OS and much more. Facebook’s business is still centered solely on social networking and although it offers great opportunities for targeted advertising, in the long run it might not be able to expand and grow like Google, especially in its post-IPO period.

There is also another worry. Many cited Facebook’s acquisition of Instagram for $1 billion as proof of a new tech bubble, brewing in the backdrop of the IPO hype. This does not mean that Facebook will implode, to the contrary, it will remain on top and not even Google will unseat it. If anything, the Google+ failure served to solidify Facebook’s market lead, as many naysayers believed Facebook would eventually give way to something new and better. Even Facebook will find it increasingly difficult to sustain growth at current levels. However, it is hard to see investors willing to prop up social networking startups in years to come, or many related services for that matter. The market is already oversaturated and even the mighty Google could not pull the rug from under Zuckerberg and his whiz kids. Taking on Google or Facebook today is a bit like invading Russia in November. It can be done, but really - it shouldn’t. So, investment and development are likely to slow down. One example could be Color, an interesting but overhyped service.

Still, there is silver lining. It is estimated that Zuckerberg will make more than $20 billion on the IPO, while dozens of Facebook’s early employees will become instant millionaires. We can hardly think of better role models for coders pounding away at their energy drink stained keyboards in dorms and crappy apartments around the world, thinking “That could be me.” Well, it can, as long as they are not developing a social network. That gravy train has left the station.

Last modified on 18 May 2012
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