Anyone Investing in Facebook?

Is Facebook sustainable?
Facebook announced this week that it anticipates filing for its much anticipated initial public offering, or IPO, as early as this Wednesday, 1 February 2012.  It is estimated (by some very smart people) that the company could raise $10 billion (that's US$, and with a "B"), which would give the company an immediate market capitalization ranging between US$75-100 billion.  To put this in perspective, the Washington Post compared this to other discussion-worthy IPO's, which shows that Facebook is in impressive company:
  1. It would be the sixth largest IPO in history, falling somewhere between AT&T and Kraft Foods.
  2. It would be the largest technology IPO in history, unseating Google's none-to-shabby $1.66 billion IPO in 2004. 
  3. It will put Facebook at a higher market value than Disney ($70B) and GM ($38B), although quite short of its brethren Apple ($422B), Microsoft ($248B) and Google ($187B ... which gets its revenge for being unseated).
This does beg the question, for me anyway, of whether Facebook, which will now face increasing scrutiny from its public investors, its board of directors, and the SEC, can continue on its breakneck growth pace and push the boundaries of privacy protection that has made it so valuable thus far.  As their user count surpasses 800 billion people (making it the third largest "country" in the world, far surpassing the US), you have to question whether Facebook is at its peak right now, or nearing it quickly.

Another question burns ... can Facebook protect the social media space it current dominates?  I made the argument in "Facebook vs Google+" that the company is making great strides to transform its strategy from merely a social networking website to become the preeminent developer of the social media platform we will all use in the future.  It is working, but is it sustainable (the $10B question)?

Rob Go of CNN Money wrote a great article expressing his doubts about the sustainability, saying that Facebook's success is reminiscent of the growth of Yahoo!, which at its peak was a market leader in online platforms.  Of course, Yahoo! declined because they weren't successful at staying at the forefront of the industry.  Facebook faces a few of these same threats:
  • True, users spend on average 23 hours per month on Facebook and represent 38% of all internet traffic, or and ungodly 3 out of every 8 hours online (don't these people have jobs?).  Impressive, but new companies are sprouting up everywhere, providing social interactions that are more local, specialized and meaningful.  Photo sharing on Instagram is easier, better and more creative.  More specialized social curation of products is available on Pinterest.  Blogging and self expression can be more creative on Tumblr.  You can earn "mayorships" and badges on FourSquare (although my interest personally is waning quickly ... you can only be the mayor of so many places in Myrtle Beach).  These are just a few examples of how people's interest and the industry are changing, and while Facebook scrambles to keep up, they won't be able to successfully please everyone all the time.
  • It is obvious that we are becoming a more mobile (phone) society.  Mobile usage statistics are staggering (see my post for "Coastal Carolina Key Note"), especially when you consider where we were just a few short years ago (does anyone else remember the Motorola Krazer?).  It is also important to understand that the mobile smart phone era is in its infancy.  All of this poses a problem for Facebook, which by its nature is not mobile.  It is adapting, and you don't have to be an insider to know the company leadership is most likely taking extensive steps to transition.  Like Netflix's attempts at becoming the leader in movie streaming while maintaining its lead in the "DVD delivery" category, I think Facebook will find it difficult to dominate both computer and mobile at once.
  • Mr. Go also makes a case for the "talent exodus" at Facebook, which many leading companies in the technology industry face.  This is obviously an area I can't speak to (technology, not talent), but I think it also poses a serious threat.
With all of this said, Facebook does have much working for it.  It's young, it's exciting, it's massive, and if the IPO plays out like analysts believe, it is going to be a powerhouse for the foreseeable future.  The problem is, "foreseeable future" isn't nearly as long as it once was.  Stay tuned.

Anyone want to go in halvsies with me?

January 27, 2012