Facebook IPO
A decade ago, Facebook told the public markets that it was pouring money into smartphone apps because mobile usage was key to the company’s growth, even though it did “not currently directly generate any meaningful revenue” at the time.
That was in the prospectus for its Nasdaq debut, which took place ten years ago Wednesday and resulted in the largest IPO ever for a U.S. tech company. Facebook’s $100 billion-plus market cap instantly made it one of the most valuable tech companies on the planet.
But within three months the stock had lost roughly half its value as the market heeded Facebook’s warning. With consumers flocking to smartphones before there was a proven business model for ads on the small screens, investors worried that Facebook’s days of hyper growth were in the rearview mirror.
We know how that worked out.
Facebook is now more than 25 times bigger by revenue than it was in 2012. And by 2018, over 90% of ad sales came from mobile. At its market cap peak in 2021, Facebook was worth over $1 trillion , largely on the strength of its core mobile app as well as Instagram and WhatsApp, which it acquired.
The company now has a new name, Meta . And of the six top executives from the days of the IPO, only two remain: co-founder and CEO Mark Zuckerberg and Chief Operating Officer Sheryl Sandberg .
However, for investors the dilemma looks quite similar. The technology landscape is changing, and Zuckerberg is making yet another bet-the-farm wager on where it’s going. Facebook said in October it will spend about $10 billion over the next year developing technologies to build the metaverse, a world of virtual work and play that consumers will access through a headset.
Like in 2012, there’s no big existing business model and no certainty that Zuckerberg’s vision will play out as he predicts.
“My concerns with regards to the metaverse are that investments are more akin to drilling for oil wells — you might come up empty-handed, you might strike it rich,” said Brian Yacktman , chief investment officer of YCG Investments, which oversees more than $1 billion in assets. “I just question how large it will be and who will be the winners.”
The metaverse’s foggy future is just one reason the company’s stock has dropped 47% since reaching its high in September, by far the worst performance among the six most valuable U.S. tech companies over that stretch. User numbers declined for the first time ever in the fourth quarter and Apple’s privacy changes are hurting Facebook’s ability to provide targeted ads.
Facebook vs. Big Tech
There’s also the reputational hit the company has taken since whistleblower and ex-employee Frances Haugen leaked internal documents showing that Facebook is aware of the harms its products cause, particularly to younger users, while avoiding taking actions to fix them.
Yacktman still owns Meta shares, but his firm hasn’t added to its position in quite a while. He says the sell-off reflects the market’s view that the metaverse is a cash sinkhole and little more than a Zuckerberg plaything. Meanwhile, Facebook remains the clear No. 2 in U.S. digital advertising, a market that Insider Intelligence expects will grow almost 50% by 2025 to $300 billion.
“They have a cash-gushing machine right now, and the market is ascribing zero value to the cash they’re burning for the metaverse,” Yacktman said. In other words, he said, the core ad business is solid and “you have a free option on the metaverse.” Record IPO
The last decade has been a wild ride for the company.
The company’s IPO in 2012 was historic. Facebook raised $16 billion , the third-largest U.S. IPO ever, behind only Visa in 2008 and General Motors in 2010 . Within the tech industry, the biggest up to that point had been Agere Systems , which spun out of Lucent Technologies in 2001 and raised about $4.1 billion.
By the time Facebook went public, it was already one of the dominant brands on the internet, with over 500 million daily active users worldwide and $1 billion in quarterly revenue. Its valuation had soared on the secondary market, as a host of private equity funds, mutual fund companies and hedge funds bid up the price by offering hefty payouts to employees and existing investors.
Morgan Stanley led Facebook’s IPO, in a coup over Wall Street rival Goldman Sachs , but the offering didn’t go as planned. The company raised the price range headed into the offering, even as internal concerns were circulating about Facebook’s outlook […]
source Facebook’s IPO 10 years later — new name, same CEO and a familiar problem
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