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There's an elephant in the room that is hardly discussed, and that is Facebook's multi class share structure. It upends the basic tenet of stock ownership, whic

There's an elephant in the room that is hardly discussed, and that is Facebook's multi class share structure. It upends the basic tenet of stock ownership, which is to influence how a company functions. More shares = more equity = more influence. Zuckerberg is in permanent control of Facebook via his superior class, so the only way to disagree with his actions is to not own shares of Facebook. And since Facebook does not pay a dividend, owners of class A shares have to ask themselves how they expect to profit other than relying on a greater fool to take their current shares off their hands at a higher price.

repsilat 8y ago
Just to paint the other side of the picture: Many institutional investors think Zuckerberg has done a great job running the company, and think he'll probably continue to do a better job than a replacement CEO. As such, they want him to continue to run the company to maximise the value of their own shares. Shareholders actually voted to allow a stock split that would have allowed Zuckerberg to maintain his voting majority while allowing him to reduce his ownership share[1], though the split didn't eventually take place[2]. (Also, obviously this isn't true of all startups. Travis Kalanick was a drag on Uber's valuation, even though he can probably take a lot of credit for its rise.) These different voting classes are controversial, but it's also important to note what rights are not diluted as well. To wit: you get the same dividends as everyone else (hmm...) and the same rights as other shareholders to the furniture if they go tits-up (also hmm...). And to me that's the biggest argument against these different classes -- for companies that are unlikely to ever pay a dividend, they call into question what shares actually are, and why they should have value at all. 1: https://www.recode.net/2016/4/27/11586478/facebook-stock-split-zuckerberg-class-c-shares https://www.recode.net/2016/4/27/11586478/facebook-stock-spl... 2: https://www.recode.net/2017/9/23/16354302/why-mark-zuckerberg-facebook-stock-split https://www.recode.net/2017/9/23/16354302/why-mark-zuckerber...
seldon999 8y ago
Trading at 24x GAAP '19 EPS. A modest premium to the S&P500 for a stock growing EPS at 2-3x the rate of the index. And a company that has a duopoly in mobile advertising. Greater fool indeed!
- nl 8y ago
  Indeed. And apparently people think investors are opposed to keeping Zuckerburg in control because he doesn't have great people skills or something, even though he got that mobile duopoly.
- brisance 8y ago
  How does the shareholder benefit from these metrics when no dividends are paid?
nl 8y ago
Most small to mid-sized players see the multi-class structure as benefit since it keeps control in Zuckerberg's hands. Indeed only a very few large players see it as a bad thing - and they are people like Icahn. Greater fool doesn't really apply while revenue keeps growing.
- brisance 8y ago
  That didn't really answer my question. What is the benefit of owning FB shares, especially if someone is a retail trader? Quarterly revenue growth is underperforming Apple’s services and it does not have a balance sheet like Apple's. Apple pays dividends and has a conventional ownership structure.
  - nl 8y ago
    Yeah, fair point. I do agree there is a fundamental issue there. But the second class shares do have board voting rights etc, so they do have some degree of control. And even Zuckurberg can't ignore his board completely. Travis Kalanick had a 2-class share system working for him too.
jlarocco 8y ago
> And since Facebook does not pay a dividend, owners of class A shares have to ask themselves how they expect to profit other than relying on a greater fool to take their current shares off their hands at a higher price. To be fair, isn't that how most money is made in the stock market?
- brisance 8y ago
  There's a difference as I explained earlier. In a conventional company ownership structure, owning a share means you can vote on company matters, to elect directors to the board etc. However in the case of FB, the outsized voting powers of class B shares are not available to the public. In other words the shares have no inherent value. An investor might be wiser to invest in FB bonds since they are paid ahead of holders of equity should FB implode.
telltruth 8y ago
What the F are you smoking? I'm super glad that Zuck has all the control or otherwise you can count on likes on Carl Icahn to circle facebook like vultures at this point and tear it in to pieces until guts are sold and cashed-in. In fact, I would not buy stock of tech company where visionary founder is not guaranteed to be in-charge. Sure there is 50% chance that they will screw up. But if a VCs or so-called activist investor was in-charge, there is 100% chance of screw up.
- dang 8y ago
  > What the F are you smoking Please don't post like that to HN. It breaks the site guidelines: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html. Your comment would be fine without the first sentence.
Blackthorn 8y ago
> And since Facebook does not pay a dividend, owners of class A shares have to ask themselves how they expect to profit other than relying on a greater fool to take their current shares off their hands at a higher price. Dividends are merely one of three ways that companies can return value to shareholders.
- euyyn 8y ago
  What are the other two?
  - taejo 8y ago
    Buybacks are one, but I'm not sure what the incentive to Facebook would be to buy back non-voting stock.
  - Blackthorn 8y ago
    Buybacks and mergers. The latter, of course, is rather unlikely.

repsilat 8y ago

Just to paint the other side of the picture: Many institutional investors think Zuckerberg has done a great job running the company, and think he'll probably continue to do a better job than a replacement CEO. As such, they want him to continue to run the company to maximise the value of their own shares. Shareholders actually voted to allow a stock split that would have allowed Zuckerberg to maintain his voting majority while allowing him to reduce his ownership share[1], though the split didn't eventually take place[2]. (Also, obviously this isn't true of all startups. Travis Kalanick was a drag on Uber's valuation, even though he can probably take a lot of credit for its rise.) These different voting classes are controversial, but it's also important to note what rights are not diluted as well. To wit: you get the same dividends as everyone else (hmm...) and the same rights as other shareholders to the furniture if they go tits-up (also hmm...). And to me that's the biggest argument against these different classes -- for companies that are unlikely to ever pay a dividend, they call into question what shares actually are, and why they should have value at all. 1: https://www.recode.net/2016/4/27/11586478/facebook-stock-split-zuckerberg-class-c-shares https://www.recode.net/2016/4/27/11586478/facebook-stock-spl... 2: https://www.recode.net/2017/9/23/16354302/why-mark-zuckerberg-facebook-stock-split https://www.recode.net/2017/9/23/16354302/why-mark-zuckerber...

seldon999 8y ago

Trading at 24x GAAP '19 EPS. A modest premium to the S&P500 for a stock growing EPS at 2-3x the rate of the index. And a company that has a duopoly in mobile advertising. Greater fool indeed!

nl 8y ago
Indeed. And apparently people think investors are opposed to keeping Zuckerburg in control because he doesn't have great people skills or something, even though he got that mobile duopoly.
brisance 8y ago
How does the shareholder benefit from these metrics when no dividends are paid?

nl 8y ago

Most small to mid-sized players see the multi-class structure as benefit since it keeps control in Zuckerberg's hands. Indeed only a very few large players see it as a bad thing - and they are people like Icahn. Greater fool doesn't really apply while revenue keeps growing.

brisance 8y ago
That didn't really answer my question. What is the benefit of owning FB shares, especially if someone is a retail trader? Quarterly revenue growth is underperforming Apple’s services and it does not have a balance sheet like Apple's. Apple pays dividends and has a conventional ownership structure.
- nl 8y ago
  Yeah, fair point. I do agree there is a fundamental issue there. But the second class shares do have board voting rights etc, so they do have some degree of control. And even Zuckurberg can't ignore his board completely. Travis Kalanick had a 2-class share system working for him too.

jlarocco 8y ago

> And since Facebook does not pay a dividend, owners of class A shares have to ask themselves how they expect to profit other than relying on a greater fool to take their current shares off their hands at a higher price. To be fair, isn't that how most money is made in the stock market?

brisance 8y ago
There's a difference as I explained earlier. In a conventional company ownership structure, owning a share means you can vote on company matters, to elect directors to the board etc. However in the case of FB, the outsized voting powers of class B shares are not available to the public. In other words the shares have no inherent value. An investor might be wiser to invest in FB bonds since they are paid ahead of holders of equity should FB implode.

telltruth 8y ago

What the F are you smoking? I'm super glad that Zuck has all the control or otherwise you can count on likes on Carl Icahn to circle facebook like vultures at this point and tear it in to pieces until guts are sold and cashed-in. In fact, I would not buy stock of tech company where visionary founder is not guaranteed to be in-charge. Sure there is 50% chance that they will screw up. But if a VCs or so-called activist investor was in-charge, there is 100% chance of screw up.

dang 8y ago
> What the F are you smoking Please don't post like that to HN. It breaks the site guidelines: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html. Your comment would be fine without the first sentence.

Blackthorn 8y ago

> And since Facebook does not pay a dividend, owners of class A shares have to ask themselves how they expect to profit other than relying on a greater fool to take their current shares off their hands at a higher price. Dividends are merely one of three ways that companies can return value to shareholders.

euyyn 8y ago
What are the other two?
- taejo 8y ago
  Buybacks are one, but I'm not sure what the incentive to Facebook would be to buy back non-voting stock.
- Blackthorn 8y ago
  Buybacks and mergers. The latter, of course, is rather unlikely.