The much bally-hooed IPO of Facebook was staged yesterday on the New York Stock Exchange. The initially offered share price was $38 per share, valuing the company at $104 billion. Underwriters, including Goldman Sachs, Morgan Stanley and JPMorgan Chase were forced to buy back shares to keep the price above its IPO level. It closed only 23 cents above the open. The reason? Investors simply weren’t biting. The idea of pricing a share of stock of a company at such stratospherically high price was kind of silly. For all of the time that we spend on Facebook, the company has only been able to net about $3.4 billion a year in earnings, and that’s not a lot to justify an asking price of over $100 billion.
I think of the internet like the highway system of the country. It doesn’t have value, in and of itself, and the sites that we spend our time on, like this one, are like the various interstates. They just allow us to get to our destinations, and do what we want to do. Monetizing activities on here isn’t going to get any easier in the near future, as the internet seems to just drive the price of everything down (Exhibit A, see Amazon.com). For all of the hype surrounding the company, it didn’t take off on its first day, as many new stocks do. And while that’s not an altogether bad thing, it does point to the fact that for however much time we spend on here, prospects for growth, time and again, are not what we hope for them to be.
What I find interesting about this entire story is the link between Facebook and General Motors. GM recently went through an IPO, like Facebook, after going through the accelerated bankruptcy and engaging in lots of turnaround measures. GM didn’t get as much for its IPO, which is to be expected, given the fact that you take a ding to your reputation in bankruptcy. GM also declined to renew advertising on Facebook, as they didn’t it to be particularly effective.
But the fact is, GM makes things, things we need, and things that we can touch and see. Things that employ hundreds of thousands of people, from engineering to marketing to financing, sales and service and beyond. Facebook does not. So while the highway metaphor had, at least for me, been coincidental, there are still companies, like GM, that are making tangible products that employ far more people, that have far greater prospects for growth. If you don’t believe me, consider this: Warren Buffet bought GM stock this week. I doubt, highly, that he’s getting in on the Facebook action.