9 ms·

Zuckerberg's Big Facebook Mistake

49 points by sampsonjs 14y ago

jfb 14y ago
The mistake, if it turns out to be one, was not in shunning capital markets, but rather, building a business that required capital on a scale that only the capital market could provide.
- Zarkonnen 14y ago
  Quite. I think the whole article can be abbreviated to "Facebook large but not very profitable".
  - bsphil 14y ago
    Which hasn't been news for years in the first place. Way to go, Forbes.
bostonscott 14y ago
When it came to monetizing search, Google was lucky in that someone else already figured out how to do that (GoTo.com). No comparably effective model exists for monetizing high traffic websites (social media or otherwise), despite many attempts over the past two decades. Not even close. If Zuck took Facebook public 5 years ago, they would have gotten much less money, and they would have been distracted by investors calling for them to focus on building out that business model rather than attracting users - and Zuck may have lost controlling power in the company (less money + less users = less leverage for Zuck).
- cube13 14y ago
  >If Zuck took Facebook public 5 years ago, they would have gotten much less money, and they would have been distracted by investors calling for them to focus on building out that business model rather than attracting users - and Zuck may have lost controlling power in the company (less money + less users = less leverage for Zuck). Would this be a bad thing? The entire reason that Facebook needed to go public was because they needed the money to pay off their investors.
  - AznHisoka 14y ago
    So who's gonna pay off the public shareholders of FB now? Where's the greater fool?
    - marvin 14y ago
      Well...Facebook's IPO valuation was about 100 billion US dollars. So if Facebook generates 100 billion dollars in profits throughout its history, inflation-adjusted, IPO investors who hold onto their shares will get their money back. Otherwise, their gamble will not have paid off. There won't necessarily have to be any fools anywhere.
      - RichardKim 14y ago
        You are not taking into account risk premia i.e. discount rate for investing in a highly volatile tech stock such as facebook. So to be net present value neutral it would need to generate over 100 bn in profits. And not only that, the market cap (at ipo valuation) is based on a stock price * number of diluted shares outstanding. Diluted shares increase on avg of about 1% per year for tech companies. Next. Stock price is based on nothing but forward earnings. If in year 10 facebook earned 100 total amount in profits but is declining then stock price will not imply a 100bn company. greater fool? it's the public shareholders who bought facebook at ipo v. some other public company with better risk adjusted prospects. I mean everything should be based on risk adjusted investment. right now fb is worth 50bn so who's the fool for taking a 50% loss in less than a 3 months? answer: everyone who invested at ipo.
      - rustynails77 14y ago
        I'm not so sure about that. Facebook is WAY overpriced. It will take years to recoup the costs and they have very few prospects of making money in the forseeable future. I support your theory that Facebook will make 100bn back, but by the time Facebook does, the 100bn will be worth far less than that amount, due to potential earnings. As an example, I bought Qantas shares a while ago - and held them for 10 years. Their value didn't go up much in 10 years, so the "potential" earnings of that money was not realised - so despite the shares not going backwards, I lost out. Facebook is a losing proposition, unless they pull a rabbit out of the hat - and there's nothing on the horizon at all that even indicates they will come up with something.
caycep 14y ago
an IPO is an IPO - aside from all the hyperventilating over share price over these first few weeks, Zuck and Co now have raised the capital they need. Let's see how things are in one year. Facebook's long term prospects will be built on the quality of their products, not the jitters of the short term investor.
- blurpin 14y ago
  totally agree with you. One major point of that article was that, had Facebook IPO'd sooner, it would have been better off with the discipline that comes with being a public company. Baloney. I can think of a ton of companies that have manipulated their way under the watchful gaze of Wall Street. this follow up post makes some great counter points: http://www.forbes.com/sites/tomiogeron/2012/07/27/post-ipo-facebooks-bigger-mistake-would-be-obsessing-about-wall-street/ http://www.forbes.com/sites/tomiogeron/2012/07/27/post-ipo-f...
gojomo 14y ago
Facebook is making money and has a giant warchest from the IPO. The main risk of being public is to employee morale, but the right internal culture/messaging, and (occasionally) option-repricing/reissuing can manage that.
- zeroonetwothree 14y ago
  Most FB employees have RSUs, not options.
momma-joe 14y ago
You can have the greatest product in the world, if you don't make money from it the company is worth zilch! stepping out of SV shows these companies what the real world is. You can take that to the bank.
- Me1000 14y ago
  Sure, Facebook had a billion dollars in revenue last quarter.
  - pooriaazimi 14y ago
    Only half of it was profit though: http://www.gmanetwork.com/news/story/267151/economy/finance/facebook-reports-157m-q2-loss-operating-profit-of-515m http://www.gmanetwork.com/news/story/267151/economy/finance/...
vwoolf 14y ago
I stopped reading here: "The roadblocks he faced in building the world’s biggest social-networking company were tiny, like an overdramatized civil lawsuit" and also wished for a "downvote" button. This trivializes what it takes to build a multi-billion-dollar company—any multi-billion-dollar company.
temphn 14y ago
The roadblocks he faced in building the world’s biggest social-networking company were tiny Nathan Vardi is just completely ignorant. I'm surprised to see something so colossally stupid in Forbes. Say what you will about them, Zuckerberg fended off dozens of competitors (ranging from Myspace to Apple's Ping to now Google itself) to rise to world dominance. Facebook didn't just "happen".
- sadga 14y ago
  I don't know why you are surprised. Forbes is not a reputable publication. It's "People Magazine / US Weekly" for people in the business world. It's not Bloomberg News. http://www.hnsearch.com/search#request/submissions&q=forbes&sortby=create_ts+desc http://www.hnsearch.com/search#request/submissions&q=for...
ramblerman 14y ago
The IPO has thus far been a disaster for overy eager investors and maybe that's where the hate from Forbes originates, but the notion that it changes much for Zuckerberg himself is laughable. "[Facebook] still needed money", is just so wrong. The IPO was about Zuckerberg and close colleageaus being able to cash out a little bit and overcoming the shareholder limit. I highly doubt it has any impact on his plans for facebook. A pretty poor assesment by a publication like "Forbes"
angersock 14y ago
It my be just me, but did anyone else sense a lot of Wall Street/banker/etc. "Heh, look at those adorable little web people, trying to do something?" To wit: Start-up entrepreneurs cannot evade the discipline of the capital markets any more than can the prime ministers of Spain and Italy. Honestly? Isn't that a bit self-congratulatory? How about places like Barclays--can they evade the discipline?
jusben1369 14y ago
There's a little hyperbole and overly simplified statements in here but this article really hit the nail on the head. Zuckerberg missed the most explosive part of his curve to go out by waiting so long. He took onboard investors who did not push the company - they knew they were good for a great exit no matter what. Now he's going to end up with low morale and scrambling to mature the platform. He danced with the Devil and right now the Devil is up on points going into the 7th round.......
InclinedPlane 14y ago
Mistake? For Facebook investors perhaps. But not for Zuckerberg. He gamed the IPO system like a champ, extracting far more hard cash from investors and financial institutions than he should have been able to based on the fundamentals of his company. Consider. Here's this company that is nominally a "publicly traded corporation" that still has over 50% of the stock in one person's hands, Zuck. And it's sitting on a pile of many billions of dollars of cold hard cash (representing well over a decade of potential accumulated profits at present levels). All of the early investors and employees have cashed out to the tune of millions or even billions per person. Meanwhile, Facebook is using its corporate cash hoard to buy up competitors and fill out the empire. They played this game remarkably. They played the banks, they played the financial analysts, they played the investors. They've got theirs and they are far more secure of a company than they were before the IPO.
ruggeri 14y ago
Where was the content here? What was the point of this article? It's a bunch of cobbled together nonsense with no logical flow. Pardon someone grumpy to be up early on a Saturday, but please don't post things that make no damn sense.

49 points by sampsonjs 14y ago

jfb 14y ago

The mistake, if it turns out to be one, was not in shunning capital markets, but rather, building a business that required capital on a scale that only the capital market could provide.

Zarkonnen 14y ago
Quite. I think the whole article can be abbreviated to "Facebook large but not very profitable".
- bsphil 14y ago
  Which hasn't been news for years in the first place. Way to go, Forbes.

bostonscott 14y ago

When it came to monetizing search, Google was lucky in that someone else already figured out how to do that (GoTo.com). No comparably effective model exists for monetizing high traffic websites (social media or otherwise), despite many attempts over the past two decades. Not even close. If Zuck took Facebook public 5 years ago, they would have gotten much less money, and they would have been distracted by investors calling for them to focus on building out that business model rather than attracting users - and Zuck may have lost controlling power in the company (less money + less users = less leverage for Zuck).

cube13 14y ago
>If Zuck took Facebook public 5 years ago, they would have gotten much less money, and they would have been distracted by investors calling for them to focus on building out that business model rather than attracting users - and Zuck may have lost controlling power in the company (less money + less users = less leverage for Zuck). Would this be a bad thing? The entire reason that Facebook needed to go public was because they needed the money to pay off their investors.
- AznHisoka 14y ago
  So who's gonna pay off the public shareholders of FB now? Where's the greater fool?
  - marvin 14y ago
    Well...Facebook's IPO valuation was about 100 billion US dollars. So if Facebook generates 100 billion dollars in profits throughout its history, inflation-adjusted, IPO investors who hold onto their shares will get their money back. Otherwise, their gamble will not have paid off. There won't necessarily have to be any fools anywhere.
    - RichardKim 14y ago
      You are not taking into account risk premia i.e. discount rate for investing in a highly volatile tech stock such as facebook. So to be net present value neutral it would need to generate over 100 bn in profits. And not only that, the market cap (at ipo valuation) is based on a stock price * number of diluted shares outstanding. Diluted shares increase on avg of about 1% per year for tech companies. Next. Stock price is based on nothing but forward earnings. If in year 10 facebook earned 100 total amount in profits but is declining then stock price will not imply a 100bn company. greater fool? it's the public shareholders who bought facebook at ipo v. some other public company with better risk adjusted prospects. I mean everything should be based on risk adjusted investment. right now fb is worth 50bn so who's the fool for taking a 50% loss in less than a 3 months? answer: everyone who invested at ipo.
    - rustynails77 14y ago
      I'm not so sure about that. Facebook is WAY overpriced. It will take years to recoup the costs and they have very few prospects of making money in the forseeable future. I support your theory that Facebook will make 100bn back, but by the time Facebook does, the 100bn will be worth far less than that amount, due to potential earnings. As an example, I bought Qantas shares a while ago - and held them for 10 years. Their value didn't go up much in 10 years, so the "potential" earnings of that money was not realised - so despite the shares not going backwards, I lost out. Facebook is a losing proposition, unless they pull a rabbit out of the hat - and there's nothing on the horizon at all that even indicates they will come up with something.

caycep 14y ago

an IPO is an IPO - aside from all the hyperventilating over share price over these first few weeks, Zuck and Co now have raised the capital they need. Let's see how things are in one year. Facebook's long term prospects will be built on the quality of their products, not the jitters of the short term investor.

blurpin 14y ago
totally agree with you. One major point of that article was that, had Facebook IPO'd sooner, it would have been better off with the discipline that comes with being a public company. Baloney. I can think of a ton of companies that have manipulated their way under the watchful gaze of Wall Street. this follow up post makes some great counter points: http://www.forbes.com/sites/tomiogeron/2012/07/27/post-ipo-facebooks-bigger-mistake-would-be-obsessing-about-wall-street/ http://www.forbes.com/sites/tomiogeron/2012/07/27/post-ipo-f...

gojomo 14y ago

Facebook is making money and has a giant warchest from the IPO. The main risk of being public is to employee morale, but the right internal culture/messaging, and (occasionally) option-repricing/reissuing can manage that.

zeroonetwothree 14y ago
Most FB employees have RSUs, not options.

momma-joe 14y ago

You can have the greatest product in the world, if you don't make money from it the company is worth zilch! stepping out of SV shows these companies what the real world is. You can take that to the bank.

Me1000 14y ago
Sure, Facebook had a billion dollars in revenue last quarter.
- pooriaazimi 14y ago
  Only half of it was profit though: http://www.gmanetwork.com/news/story/267151/economy/finance/facebook-reports-157m-q2-loss-operating-profit-of-515m http://www.gmanetwork.com/news/story/267151/economy/finance/...

vwoolf 14y ago

I stopped reading here: "The roadblocks he faced in building the world’s biggest social-networking company were tiny, like an overdramatized civil lawsuit" and also wished for a "downvote" button. This trivializes what it takes to build a multi-billion-dollar company—any multi-billion-dollar company.

temphn 14y ago

The roadblocks he faced in building the world’s biggest social-networking company were tiny Nathan Vardi is just completely ignorant. I'm surprised to see something so colossally stupid in Forbes. Say what you will about them, Zuckerberg fended off dozens of competitors (ranging from Myspace to Apple's Ping to now Google itself) to rise to world dominance. Facebook didn't just "happen".

sadga 14y ago
I don't know why you are surprised. Forbes is not a reputable publication. It's "People Magazine / US Weekly" for people in the business world. It's not Bloomberg News. http://www.hnsearch.com/search#request/submissions&q=forbes&sortby=create_ts+desc http://www.hnsearch.com/search#request/submissions&q=for...

ramblerman 14y ago

The IPO has thus far been a disaster for overy eager investors and maybe that's where the hate from Forbes originates, but the notion that it changes much for Zuckerberg himself is laughable. "[Facebook] still needed money", is just so wrong. The IPO was about Zuckerberg and close colleageaus being able to cash out a little bit and overcoming the shareholder limit. I highly doubt it has any impact on his plans for facebook. A pretty poor assesment by a publication like "Forbes"

angersock 14y ago

It my be just me, but did anyone else sense a lot of Wall Street/banker/etc. "Heh, look at those adorable little web people, trying to do something?" To wit: Start-up entrepreneurs cannot evade the discipline of the capital markets any more than can the prime ministers of Spain and Italy. Honestly? Isn't that a bit self-congratulatory? How about places like Barclays--can they evade the discipline?

jusben1369 14y ago

There's a little hyperbole and overly simplified statements in here but this article really hit the nail on the head. Zuckerberg missed the most explosive part of his curve to go out by waiting so long. He took onboard investors who did not push the company - they knew they were good for a great exit no matter what. Now he's going to end up with low morale and scrambling to mature the platform. He danced with the Devil and right now the Devil is up on points going into the 7th round.......

InclinedPlane 14y ago

Mistake? For Facebook investors perhaps. But not for Zuckerberg. He gamed the IPO system like a champ, extracting far more hard cash from investors and financial institutions than he should have been able to based on the fundamentals of his company. Consider. Here's this company that is nominally a "publicly traded corporation" that still has over 50% of the stock in one person's hands, Zuck. And it's sitting on a pile of many billions of dollars of cold hard cash (representing well over a decade of potential accumulated profits at present levels). All of the early investors and employees have cashed out to the tune of millions or even billions per person. Meanwhile, Facebook is using its corporate cash hoard to buy up competitors and fill out the empire. They played this game remarkably. They played the banks, they played the financial analysts, they played the investors. They've got theirs and they are far more secure of a company than they were before the IPO.

ruggeri 14y ago

Where was the content here? What was the point of this article? It's a bunch of cobbled together nonsense with no logical flow. Pardon someone grumpy to be up early on a Saturday, but please don't post things that make no damn sense.