On Friday May 18th, 2012 Mark Zuckerberg (Age 28) Will Have Billions in Stock, Making Him One of the 10 Wealthiest Americans: Is Facebook Doomed?
Amidst all the excitement surrounding the Facebook initial public stock offering ("IPO") of May 18th, 2012 (from 500 to 1,000 Facebook employees and shareholders are expected to become immediate millionaires - and a lucky few will be billionaires - but the willingness of some early employees and investors to cash out at the offering price has raised concern).
For example, Chris Taylor has written a May 16th, 2012 post for Mashable that suggests Facebook has big problems - problems that Mr. Taylor apparently believes might be insurmountable:
"One of Facebook’s biggest problems is mobile: it hasn’t figured out how to make money from its smartphone-based users, so the more of us that check Facebook from our phones, the worse for Facebook’s average revenue per user (or ARPU, a very important financial metric for consumer companies)."
In its SEC filing (preliminary prospectus for its IPO), as required by law, Facebook outlined 35 risk factors that could “materially and adversely affect” Facebook. Here's that list - as summarized by Chris Taylor in Mashable on Feb. 1, 2012:
1. We could simply lose users, or fail to add new ones.
2. We could lose advertisers — and new technology may let users block ads.
3. Facebook’s mobile platform doesn’t show ads — so the more that grows, the worse for us.
4. The platform for Facebook apps might not be successful.
5. The competition from Google, Microsoft and Twitter could heat up — not to mention other social networks around the world.
6. More governments could restrict access to Facebook.
7. Users could turn their noses up at new products.
8. The Facebook culture is all about rapid innovation and getting users engaged — and that could come at the cost of profits.
9. Unspecified future events could tarnish our brand.
10. Bugs might give people access to users’ information that they’re not supposed to see.
11. The media could turn on us.
12. Our quarterly financial results could be difficult to predict.
13. Zynga accounts for 12% of our revenue. If we part ways, that could seriously hurt us.
14. Our revenue grew by 88% last year — and that’s simply not sustainable. Growth is bound to decline.
15. The U.S. laws and regulations we’re governed by could change or be reinterpreted.
16. If our patents and copyrights aren’t granted — or aren’t effective — it could seriously hurt us.
17. We have some patent lawsuits on our hands that could end badly.
18. We’re also involved in class-action lawsuits, and we could lose them too.
19. Mark Zuckerberg has a massive amount of shares, which concentrates power in the hands of one man.
20. There’s a complicated tax liability connected to a particular kind of stock unit we gave out — one that will be taxed at 45%.
21. If we need more rounds of investment, the terms might not be reasonable.
22. Costs might grow faster than revenue.
23. A lot of our servers are handled by third parties, and they might be disrupted.
24. We’ve started building a lot of our own data centers to handle traffic, and we’ve got limited experience doing this kind of thing.
25. Our software is incredibly complex and may have a lot of bugs.
26. We can’t say for sure that we’ll handle our growth effectively — we have more than 3,000 employees now, and that could spin out of control.
27. If we lose our leaders, like Zuckerberg and COO Sheryl Sandberg, that would really harm us.
28. People might sue us over all sorts of stuff posted on Facebook — intellectual property, copyright, defamation, and so on.
29. Viruses, hacking, phishing and malware. Oh my.
30. Payment systems in Facebook apps could mean new government regulations.
31. We’re continually expanding abroad, and we may not understand all the risks in new countries.
32. We’re planning to acquire lots of other companies, which could disrupt everything at Facebook.
33. We might default on our leases or our debt.
34. Our tax liabilities, in general, are bigger than we thought.
35. U.S. tax code reform, if it happens, might hit us where it hurts.
Despite this pro-forma list of potential threats and the numerous nay-sayers ("purchasing the stock will at best be the equivalent of being a peasant in Farmville"), I think Facebook is not doomed. Instead, I expect that the platform will prosper.
The social network - and how users are sharing content online - is an unprecedented disruption in human communication.
How will movies, music, books, ideas, and conversations be monetized in this new world?
Facebook is the best tool yet devised for navigating the flood of news, information, entertainment and conversations available online. And the revenue models on Facebook are starting to generate serious revenue (about $4 per user). (Chris Taylor's narrow focus on immediate problems - like the difficulty of fitting traditional ads on a mobile device screen - only makes sense if your imagination is a limited as Mr. Taylor's. For example, Mr. Taylor apparently thinks traditional ads are going to be a crucial source of revenue for Facebook going forward - I don't - and that advertisers won't be able to come up with a creative way of getting their messages into Facebook for mobile devices - they will.)
Unlike Chris Taylor and the other nay-sayers, I see enormous potential for revenue growth on Facebook (with the Average Revenue Per User increasing) - as content producers learn how to use the power of social media to reach their customers.
Posted by Randy Finch on Thursday, May 17, 2012
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