Facebook’s Floundering Stock – RantAWeek

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Facebook’s Floundering Stock

Posted by mjdudak on August 27, 2012 at 8:27 pm

This month, shares of Facebook’s stock have fallen below $20, just over half of the Initial Public Offering (IPO) for Facebook, $38. Yet, what happened to a stock that at one point caused so much excitement and how can its problems be remedied?

One of the biggest problems for Facebook started early, with a failed IPO. After its IPO, many realized that Facebook was drastically overpriced. This meant that many true investors simply abstained from Facebook. While there was excitement, the major players in the market forced the stock down at its inception to a more reasonable price. Yet, since this, the price has continued to drop. There are also a number of purely financial reasons, like poor earnings reports, but here, I will focus on the problems within the company.

Much of it has to do with a transition within Facebook. For a long time, Facebook has simply been able to feed off of growth. They made money as the network grew simply because it was growing so quickly. Yet now, Facebook has reached a saturation point. It has mostly infiltrated many developed markets, and infiltrated, to the extent it can, the developing markets. While it still has growth, the growth is slowing. With this, Facebook, in order to maintain profitability, needs to change its advertising revenue. It can no longer depend on advertising revenue to grow with the expansion of the network, but rather must make its advertising more profitable. Facebook continues to change and tweak their system to make it better, yet advertising is the one area that is not improving.

But the underlying cause of this largely comes down the management. As a private company, funded by a few investors, Facebook, led by Mark Zuckerberg, was able to basically run free. It could continue to be on the bleeding edge technologically, and go whatever way Zuckerberg saw fit. The network, from the beginning, had Zuckerberg’s fingerprints all over it. Yet now, with saturation, the company must shift focus. Additionally, being publicly owned, Zuckerberg needs to listen to his investors. But he is instead caught in the crossfire between bleeding edge technology and sound business choices. This means that his performance as CEO has been lackluster, both technologically and business-wise.

Aside from revenue, many investors and consumers are wary of Facebook’s privacy policy. Facebook has updated their policy many times over the past few years, each time restricting privacy more and more. Yet now, as a publicly owned company, they will find that they will not be able to do so. Additionally, many are afraid of what Facebook might do with all the information it holds. Facbeook is essentially a receptacle to peoples’ lives; it holds all sorts of vital information. For this reason, Facebook’s privacy policy has been a great source of fear for many, leading some investors to be even more wary of it.

So with Facebook in this state, what can they do? The issue of privacy can simply be remedied by putting in steps to lock down people’s privacy and become less of a walled garden. However, the issue of transitioning, both from its constant growth as a network and from a privately owned company, is a bigger issue. Mark Zuckerberg is undoubtedly a technological genius, but he is just that, not a business guru of any sort. While he has grown Facebook privately, as a publicly owned company Zuckerberg is not the man for the job. What Facebook should consider is a similar process which Google went through in 2001. While before Google’s 2004 IPO, in 2001, Eric Schmidt came in and took over as CEO of Google, after having managerial experience as CEO of Novell and president of Sun Technology Enterprises. While founders Larry Page and Sergey Brin maintained primary control over the technological direction of Google, Schmidt handled the legal and business aspects of Google. Page and Brin, like Zuckerberg, were simply programmers, not businessmen. Like Google, Facebook could benefit from having a more business-minded person step in as CEO and make sure that Facebook is on the right path. This will not only ensure Facebook remains profitable, but also boost investor confidence.

Facebook is becoming a ubiquitous social network, yet if they continue under the poor business direction of Mark Zuckerberg, they will flounder. However, by simply inviting in a businessman to help get Facebook on the right path in its turn around to a developed network and a public company, they will excel. The stock has fallen not because of a lack of technological innovation, Facebook remains on the bleeding edge, but because of a company that is not yet ready for its new chapter.


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  • On August 28, 2012 at 8:46 pm The very best said

    Only wanna tell that this is extremely helpful, Thanks for taking your time to write this.


  • On September 2, 2012 at 11:39 pm Talan Tyminski said

    Aside from privacy policy, where do you think consumer confidence fits in? Pete Thiel ditching it is a pretty big blow (considering he’s kinda nuts) will they be able to sustain it?


    • On September 3, 2012 at 1:13 pm Tyler Miksanek said

      Thanks for reminding me – RantAWeek needs to do an article on seasteading!


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