a decade ago, Facebook he told public markets that he was pouring money into smartphone apps because the use of mobile devices was critical to the company’s growth, even if at the time it “was not directly generating significant revenue.”
That was in the prospectus for its Nasdaq debut ten years ago on Wednesday that led to the largest IPO ever for a US tech company. Facebook’s over $ 100 billion market capitalization instantly made it one of the most valuable tech companies on the planet.
But within three months the stock had lost about half its value as the market heeded Facebook’s warning. With consumers flocking to smartphones before there was a proven business model for small-screen ads, investors feared Facebook’s hypergrowth days were in the rearview mirror.
We know how it worked.
Facebook is now more than 25 times bigger in revenue than in 2012. And by 2018, over 90% of ad sales it came from cellphone. At its peak of market cap in 2021, Facebook was worth over $ 1 trillionlargely thanks to its main mobile app, as well as Instagram and WhatsApp, which it acquired.
However, for investors, the dilemma seems quite similar. The tech landscape is changing and Zuckerberg is making yet another bet on the farm where he is going. Facebook said in October it will spend about $ 10 billion over the next year developing technologies to build the metaverse, a virtual world of work and play that consumers will access through a headset.
As in 2012, there is no large business model in existence and no certainty that Zuckerberg’s vision will come true as expected.
“My concerns with regards to the metaverse are that investing is more like drilling oil wells – you might come in empty-handed, you might get rich,” he said. Brian Yacktman, Chief Investment Officer of YCG Investments, who oversees more than $ 1 billion in assets. “I just wonder how big it will be and who the winners will be.”
The hazy future of the metaverse is just one reason the company’s stock has fallen 47% since it peaked in September, by far the worst performance among the six most valuable US tech companies in that period. The number of users decreased for the first time ever in the fourth quarter and Apples The privacy changes are harming Facebook’s ability to deliver targeted ads.
There is also the reputation shot the company has suffered since then whistler and former employee Frances Haugen leaked internal documents showing Facebook is aware of the damage its products are causing, particularly to younger users, and avoids taking action to fix it.
Yacktman still owns Meta stock, but his company hasn’t increased its position in some time. He says the sell-off reflects the market view that the metaverse is a chasm of money and little more than a Zuckerberg toy. Meanwhile, Facebook remains the clear No. 2 in US digital advertising, a market that internal intelligence expects to grow nearly 50% by 2025 to $ 300 billion.
“Right now they have a machine that gushes money and the market is attributing zero value to the money they are burning for the metaverse,” Yacktman said. In other words, he said, the ad core business is solid and “you have a free option on the metaverse.”
The last decade has been a wild ride for the company.
The company’s IPO in 2012 was historic. Facebook raised $ 16 billionthe third largest US IPO ever, behind only Seen in 2008 Other General Motors in 2010. Within the tech sector, the largest up to that point had been Agere systemswhich left Lucent Technologies in 2001 and raised approximately $ 4.1 billion.
By the time Facebook went public, it was already one of the dominant brands on the internet, with over 500 million daily active users worldwide and $ 1 billion in quarterly revenue. Its valuation skyrocketed in the secondary market as a number of private equity funds, mutual fund companies and hedge funds raised the price, delivering hefty gains to existing employees and investors.
Morgan Stanley led to Facebook’s IPO, in a coup d’etat on the Wall Street rival Goldman Sachs, but the offer did not go as expected. The company raised its expected price range for the offering, although internal concerns were circulating about Facebook’s outlook for the second quarter and full year. A group of shareholders South Facebook and Morgan Stanley for holding material information.
The Nasdaq also suffered what it called a “technical error” which delayed the opening of Facebook trading and prevented some orders from being fulfilled correctly. The stock ended its first day unchanged and continued to decline from there, starting with a 19% decline over the next two days.
Shares of Facebook have not returned to their IPO level of $ 38 until August 2013more than 14 months after their debut.
Kevin LandisFirsthand Capital Management’s chief investment officer watched the drama unfold from his office in San Jose, California, about 20 miles from Facebook’s headquarters in Menlo Park.
He first began buying Facebook stock in the private market in 2011, a purchase he said “looked smart for about five minutes” until the stock plummeted after the IPO. He kept that investment until about 2014, when the stock recovered and was traded in the 1970s.
Landis said that, in another of its funds, it started buying after the decline when the stock was in the 1920s, and rode it to around $ 200 by the time the pandemic began in 2020.
“The analysis was simple: Facebook was going to be a powerful advertising platform,” Landis said, referring to his initial thesis. The only comparable model was Googleand Facebook “could be worth a substantial fraction of what Google was worth,” he added.
However, Landis said he never had a Facebook page of his own because he hated the loss of privacy resulting from handling so much personal data.
“I broke one of my own rules: investing in something that I thought was big, but didn’t go up to my elbows,” he said.
It was a profitable bet. From late 2013, mobile advertising accounted for 45% of Facebook’s ad revenue, up from 11% in 2012, proving once again that brands follow eyeballs. Between 2013 and 2018, Facebook’s revenue growth averaged around 50% annually.
The engine was so powerful that even the seemingly catastrophic news didn’t bother Facebook’s financial data. Following the 2016 elections of Donald Trump as president, Zuckerberg repeatedly minimized the role played on its site in enabling the spread of disinformation and electoral interference by the Russians. Then came 2018 Cambridge Analytica scandalas reports revealed that the analytics firm had improper access to the data of 87 million Facebook users and used it to help Trump target ads for the 2016 election.
Finally, the Haugen saga at the end of last year began with a series of articles in the Wall Street Journal and was followed by stories from many other publications, detailing Facebook’s focus on growth despite the negative consequences of its products.
Facebook’s behavior has led to numerous government investigations. Executives were regularly called to testify before Congress, and in September several US lawmakers accused the company of following the Great Tobacco Game Book“push a product they know is harmful to the health of young people,” in the words of Senator Ed Markey, D-Mass.
Haugen newspapers coincided with the end of the prolonged bull market rally for Facebook. But the tech sector in general was also nearing its peak and began to retreat in November as concerns about inflation and rising interest rates punished high-growth stocks.
For Meta’s shareholders, the worst day on record came in February. the shares plummeted by 26% following a weak revenue forecast and an expected $ 10 billion hit from privacy changes Apple made to its mobile operating system to limit ad targeting.
Away from the quick days of expansion a few years ago, Facebook now faces a potential contraction in revenues in the second quarter, hurt by inflationary pressures and the war in Ukraine, as well as the growing popularity of the TikTok video app, which is winning users and ad dollars.
“There’s nothing existential, they’re not going to go bankrupt and they’re not going to run out of money, it’s just not a very compelling story for the foreseeable future,” he said. David Golden, partner of the San Francisco-based technology investment firm Revolution Ventures. “Facebook’s hold on the market has been greatly eased with alternatives in social media and alternatives in other channels,” she said.
Zuckerberg, who just turned 38 and retains control over his company and board of directors, doesn’t talk much about social media and mobile ads these days. It’s all about the metaverse and Meta’s Reality Labs division, which collected a loss of nearly $ 3 billion in the first quarter on revenue of $ 695 million, primarily from VR headsets.
“It won’t be until those products really reach the market and expand significantly and this market ends up being big that this is going to be a big contributor to the company’s revenue or profits,” Zuckerberg said during the earnings call. of the company last month. “This is laying the groundwork for what I expect will be a very exciting 2030 when it is like this, when this is more established as the primary computing platform.”
Landis, who hasn’t owned the shares for two years, says he’s more scared than excited about Zuckerberg’s vision and sees the absorption into virtual reality as “highly dystopian.”
“My hope is that it doesn’t take over people’s lives, it just improves people’s lives,” Landis said.
Given how much Facebook knows about its users and what the public has learned in recent years about how the company handles data and privacy, Landis doesn’t trust Facebook to do the right thing.
“It’s impossible to look at that company and not have tremendously mixed emotions about it,” he said.