Facebook, which was priced on Thursday at $38, opened in the market on Friday at around $42, before falling to $38. The stock rebounded, but fell back again, closing up 0.6% over the launch price at $38.23. Not bad for the first day of trading, specially if one takes into account the analysis done by Colin Cieszynski, Senior Market Analyst at CMC Markets on Facebook’s IPO.
In each and all of the the eight major companies that debuted in the stock market last decade, four from the technology sector and four from other industries, the stocks closed below their highs for the day.
Is the social network definitely becoming as popular among investors as it already is among the people actively engaged on it?
Cieszynski forecast as follows: “Performance of previous high-profile Internet related IPOs suggests that we could see a major spike off the open and perhaps even strength through the first day of trading. We could then see a retreat through the rest of May and most of June with the potential for an advance in late June or early July as analysts are cleared to publish research and the company’s first earnings report approaches. This could also coincide with traditional stock market seasonal trading swings.”
But leaving aside the own logics of the stock markets, the fact is that Facebook has still a long way to run till Google’s spot.
Weaknesses, may say some analysts, and, precisely by this fact opportunities and room to grow may say others.
The free social basis and the engagement derived from the very origins of the network constitutes a core strength of Facebook, but may turn into its main weakness, if the company lose the confidence of its users by privacy infringement.
Unripe ad model, both a risk and an opportunity
According to Phil Harpur, Senior Research Manager for ICT, Frost & Sullivan Australia, while Facebook is already mature in terms of number of social media users, and facing growing competition from Google in this area, it is still relatively immature in terms of their advertising model which is where the vast majority of its revenues currently come from.
“Facebook is currently finding it difficult to compete with Google’s more mature and more developed advertising platform. To gain full industry confidence, it will be critical that Facebook spends a lot of time and resources developing its advertising model further. Just recently for example, General Motors withdrew its $10 million advertising budget from Facebook,” said Harpur.
“Facebook’s immature online advertising model, combined with their massive global reach, gives them huge potential to grow for very high revenue growth over the longer term and compete head on with Google in terms of advertising revenues. Google on the other hand while still displaying solid growth in online advertising revenues, no longer has the potential for such rapid growth due to its more mature advertising platform, ” he added.
Social mulimedia enhancements and diversification, the keys to success
In the view of Phil Harpur, Senior Research Manager for ICT, Frost & Sullivan Australia “It is critical that Facebook continues with this strategy – making their online platform highly interactive- in the coming years and develop richer communications platform where users can not only IM and make phone calls, but have access to functionality such as video conferencing sessions. Current market indications are that Facebook is fairly well placed to succeed with this strategy over the longer term”
The recent purchase of Instagram by Facebook is consistent with this objective, as well as the Skipe project for video calling.
Another field for growth considered as prioritary by the company is mobile.
The social network announced last week the launch of Facebook’s user application store, which opens another area for brand monetisation on the platform as well.
Facebook’s “App Centre” will showcase all of the best apps from across the web, including mobile platforms and Facebook itself.
Facebook hopes the personalised approach -the apps will be presented to users based on their affinity with each one- will encourage its users to engage with more apps, whilst also enlarging its developer base, creating more apps and generating more revenue.
Diversification, or what is the same, to build other revenue sources apart from advertising, seems the other way to secure monetization and growth for Facebook.
The company has just begun to explore new business models and opportunities in areas such as online shopping, as Google is now diversifying its business model from its origins as a search company only.
The privacy leak may close Facebook’s “shop”
Audrey William, Head of Research, Australia and New Zealand, ICT also said that whilst the opportunity to grow is immense, one area Facebook will need to be cautious about is in the area of privacy.
Many Facebook users have complained about its privacy settings over the past few years and as a result, some have turned away from Facebook.
In fact US Facebook users today filed an amended consolidated class action complaint in federal court in San Jose, California in the case In re: Facebook Internet Tracking Litigation, No. 5:12-md-02314-EJD. The class action asserts federal statutory and California State causes of action related to the revelation in September 2011 that Facebook was improperly tracking the Internet use of its members even after they logged out of their accounts. The action consolidates 21 related cases filed in more than a dozen states in 2011 and early 2012.
The plaintiffs assert claims under the federal Wiretap Act, which provides statutory damages per user of US$100 per day per violation, up to a maximum per user of US$10,000.
Even if Facebook’s alleged actions were considered a single violation of the Wiretap Act per class member, that means more than $15Bn in damages across the class. The complaint also asserts claims under the Computer Fraud and Abuse Act, the Stored Communications Act, various California Statutes and California common law. The Fedral Trade Commission has already considered that Facebook’s behavior infirnged the privacy rights of the users.
“It is imperative that Facebook addresses privacy issues in order to not get on the wrong side of Governments. If judiciousness is not exercised, the privacy issue could even lead to a complete ban on Facebook by a country’s government,” she elaborated. “Already there are some countries that have limited Facebook usage or completely banned it, like China. As such, regulation by country regarding privacy laws is something that Facebook needs to be mindful as it could potentially limit their growth and ultimately their revenues,” William explained.
Image over the headline.- Facebook’s Zuckerberg rings Nasdaq opening bell on the listing day of the company. Credit: Zef Nikolla
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