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The Facebook IPO: Revisited
Monday, May 21 2012

If you're even just a casual news follower, you still couldn't avoid it. If you're an information junkie, your feeds were overloaded by it. If you're in the marketing, advertising, or technology space, it has potentially huge implications. What are we talking about? The highly-anticipated initial public offering of Facebook's stock on the NASDAQ exchange, which occurred last Friday, May 18, making it the largest tech IPO in history.

While there has been a steady trickle of successful social-tech IPOs over the past few years, including LinkedIn and Groupon, they pale in comparison to Facebook, which has worked up the media into a frenzy the scale of which has not been seen since the dot-com bubble in the late 1990s. With an initial stock price of $38/share, the company is valued at just over $100 billion, making it more valuable than long-time conglomerate brands like Disney and Kraft Foods. Tuesdays with Tukaiz commented on the impending Facebook IPO at the beginning of 2012, and we felt it was important to revisit the topic considering the news last week.

Facebook was created eight years ago on the tails of that dot-com bubble as a way to connect friends together, but without any real strategy to make money. The company chose to take the monetization path many other companies that achieve mass adoption: advertising. With a growing user base nearing 1 billion that provide troves of personal information used for contextual ad targeting, this model makes sense, and its potential contributes to Facebook's valuation. Nevertheless, prior to the company's Wall Street debut, Facebook faced a few minor blows to its advertising model. First, General Motors announced that it was halting its use of targeted Facebook ads, stating that the ads did not influence consumers' car-buying decisions. Further, a study was released last week by marketing agency Greenlight stating that 44% of Facebook indicated they will "never" click on the targeted ads, including display ads and "sponsored stories" that are a cornerstone of Facebook's future success.

Additionally, despite all of the hoopla generated around Facebook's IPO, the launch last Friday can be described as tepid at best. The stock quickly shot up to $42, only to drop back to its original offering price shortly after, forcing its underwriters to prop up the stock until volume picked up. Even after gaining a few percentage points on its opening day, the stock closed just slightly above the original offering price. This result wasn't necessarily due to Facebook itself; the large volume of orders for the stock caused glitches in NASDAQ's software, which impacted the price. Also, some analysts are saying that FB was priced well, leaving it less room to grow.

Despite not having the most stellar performance on its opening day, Facebook still faces a positive outlook. For instance, even though GM dropped $10 million of Facebook advertising, the company still spent $30 million to build out a robust Facebook presence that helps support its branding and awareness initiatives. Especially for the automotive industry, which has a long and complex buying cycle, this approach is likely to be more effective, whereas companies looking for instant conversions might find targeted ads help their efforts. If Facebook keeps growing its user base, maintains consistent engagement and usage among its existing base, and is able to better-prove its marketing and advertising tools are effective, it faces a bright future and boon instead of another dot-com bust.


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