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Facebook and the 100 Billion

Investors that shoot for IPO allocations needn’t worry that a high stock price overvalues the company if they are confident they can find a ‘greater fool’ willing to pay more.

Wall Street Journal, May 21, 2012.

With cult-like projections, Mark Zuckerberg’s face was beamed across a screen at Hacker Square.  Facebook was, after all, having its heralded float as a public company, though the occasion could not cease but be a social event of some magnitude.  That, and the fact of its founder’s marriage, which received the usual empty adulation that such a network facilitates.

The shares in the company’s shares finished at $38.37, though at one point stocks were trading at $42 a share.  The value of the company is now $104 billion. That value places Facebook, in terms of the corporate giant stakes, in the 24th position in the US.  The pundits did end up with egg on their beaming faces, predicting rises of 5 to 10 percent, though this was based on the oversubscribing of the IPO by 25 times, notably in the Asian tranche (Business Spectator, May 19).  Behind the scenes, however, underwriters had to step in after an initially promising rise which touched 11 percent.  Morgan Stanley managed to keep the stock price above $38 by tapping its emergency reserve, and the bean counters are claiming that the performance was a disappointing one.

The question then is whether such a value is not just a touch exaggerated, something which might be said of the entire social media experiment.  Social media remains a treacherous form of investment, highly competitive, and entirely liquid.  The fall of MySpace suggested an automatic obsolescence – in time, hidden shallows will be exposed.  Once the bang goes off, the whimper and ultimate end will set in.

With Facebook, we are in a curious situation of producing what we consume in one act.  The Facebook generation is self-serving, self-referencing and self-contained, all interiorised by means of updates, connections, invitations.  There, the virtual and ‘actual’ mingle.  This is Zuckerberg’s cult of false intimacy, though one can hardly claim his own earnings to have been false.

Its value, like its functionality, is fictitious or better still, virtual.  The same argument might be made about company values in general, but Facebook combines this in neat fashion.  While it would be too extreme to call it, as some have, a ‘juvenile business’ model, the pressure to maintain its enormous value will be monumental.  Zuckerberg’s own value – a princely sum of $19 billion – suggests that he would not be averse to the challenge.  And challenges they shall be.

One of those lies in the world of advertising.  Companies such as GM feel that the AdSense run by Google is more efficient.  It is also worth noting that GM is entirely absent from Facebook’s list of customers (Business Spectator, May 19).  Its base of users has grown astronomically, but that has not kept pace with the advertising feature of the business.  The way users employ Facebook is also a problem of sorts, notably in the realm of mobile usage (Crikey, May 18).  A huge revenue base is essentially going untapped.

The hunt for more revenue, however, will bring the company into conflict with a world of privacy it seeks to both undermine and preserve.  Facebook ventures into inner worlds of intimacy, however genuine they might seem.  Users surrender details to Facebook as if it were a Mephistophelian bargain, though they are told that those details can be controlled in terms of access.  That very data, however, is the premise that the company might use to assist advertisers to sharpen their focus.

Besides, Zuckerberg has shown that privacy is a moot point for him, a mutable formality.  His antics in hacking the website of the Harvard University’s student newspaper when he was 19 suggest a certain mania at work.  That mania has paid off even if it wasn’t as spectacular as market analysts would have it.

Binoy Kampmark was a Commonwealth Scholar at Selwyn College, Cambridge.  He lectures at RMIT University, Melbourne. Email: bkampmark@gmail.com

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Binoy Kampmark was a Commonwealth Scholar at Selwyn College, Cambridge. He lectures at RMIT University, Melbourne. Email: bkampmark@gmail.com

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