Facebook (FB) Stock Crisis: Why The Facebook IPO is Failing

For Facebook, millions of online users across the globe have not translated into success on the stockmarket. 

Shares are almost half the value they were floated at for Facebook’s $38 IPO back in May. This spells trouble for the social networking icon. The company’s success in taking down competitors like MySpace and ConnectU does not appear to have set the table for success in the regulated market of public securities. 

Facebook’s IPO was the opportunity for the company to raise capital by floating ownership shares on the stock market. In other words, Facebook would offer a degree of ownership to the general public in exchange for the money (capital) that would be used to buy that ownership. Facebook achieves needed investment, and shareholders gain ownership they hope will be worth more value in the future.

Facebook may remain in the doldrums for quite some time, probably due to the fact that valuing a service providing intangible benefits is hard to quantify. Groupon provides money-saving coupons to its customers, meaning a value can be clearly placed on its services. Pandora provides music specific to user tastes. Each of those start-ups face their own challenges, raising questions about Facebook’s long-term capabilities to succeed as a publicly traded company. Facebook’s primary source of revenue is advertising, and only advertising, on a site not known for being an advertising hub. 

Facebook neither sells services like Pandora or goods like Groupon. Facebook, as an outlet for people young and old to connect with friends, engage in social causes, and post the occasional picture from a Friday night bender, is not a destination people visit to buy something. Although numerous games are available to play on Facebook, they are often developed by third parties like Zynga, themselves startups. 

Now subject to the scrutiny of stockholders and securities regulators, Facebook may find itself stuck between what makes the product valuable and what makes the product profitable. Facebook offered an opportunity for everyone to express themselves and share it with the world they connected to. From that Friday night bender to pictures of newborn babies, we didn’t have to wait for the annual Christmas card (or mugshot). They were all there, for the world to see, as we wanted to see them.  There is inevitably a tradeoff between profitability and “coolness,” and it might not be a tradeoff users are willing to tolerate.  

It’s a good thing stock certificates don’t come with a dislike button. Facebook might not want to see the results.