If we’re looking at Morgan Stanley, it’s complicated (hah). They’ve demonstrated to pre-IPO candidates in Silicon Valley that they will stand by their clients, support the price and take some bad publicity. If I were a company thinking of going public, it might be pretty attractive that Morgan Stanley appears willing to eat dirt for Facebook. But on the other hand, if I were a retail investor, I would be more skeptical of technology offerings they bring to the market in the future.
The next several quarters will be tough. Facebook has to prove it has more than display advertising:
While some analysts have already lowered second quarter estimates, I’ve also heard that the third quarter is projected to be soft too.
Chris Dixon said it best. Advertising that is about generating intent has lower value because it’s farther from the point of purchase. For a few years, Facebook’s theory has been that the sheer number of ads that generate demand on the web is something like 10X larger than the amount of ads at the bottom of the funnel (e.g. Google’s search ads). They believe the volume makes up for lower cost-per-click numbers.
But the sequential quarter-over-quarter decline in advertising revenue suggests that Facebook will need more legs to stand on. Flat quarter-over-quarter revenue growth in payments also suggests that the gaming vertical is mature and that Facebook will have to expand payments to other areas very, very soon.
The company will have to rebound on other business models. The Karma acquisition could lay the groundwork for a real gifting service across the entire site tied to birthdays. If even a single-digit percentage of Facebook’s 901 million users start buying birthday gifts for their friends multiple times a year through the site or mobile app, that’s not an insignificant revenue stream.
They could also launch a web-side display advertising network, an AdSense-killer if you will. But it’s not clear how much extra revenue that would add since Facebook already has a significant share of all display impressions across the web.
Even though mobile is tough right now, Facebook actually has a notable competitive advantage over rival mobile ad networks. If Apple fully removes the UDID soon, it will damage everyone else’s targeting abilities. But since Facebook knows who its users are and has recorded their tastes and preferences for years, that’s not as much a problem for them. They could launch a mobile display advertising network for all apps. Again, mobile display advertising is a tough business that isn’t producing that much revenue for anyone (even Google and Apple), but Facebook could take the lead if it pushed hard enough.
But remember that Facebook is a company that is built for the long-term: Despite the noise right now, Facebook is the one company out of the last generation of Silicon Valley startups that has enough untapped opportunities and is sufficiently mission-driven to keep attracting the best talent for years to come. Apple CEO Tim Cook even said that Facebook is the company that’s “closest” to being like Apple, according to Fortune.
If the shares fall too much by the six-month lock-up date, I would not be surprised if the company did something to make its employees feel more comfortable with their compensation (especially as the headhunters come out). This is an industry where it only takes a decade to become a geriatric company (see Yahoo). Facebook is eight. Talent is everything.
Internally, it doesn’t sound like Facebook employees are paying too much attention to the media fracas surrounding the IPO. It’s funny because the Hackathon leading into the IPO actually had a dual purpose. It wasn’t just to celebrate and maintain Facebook’s culture. One source told me it was to tire the employees out so much that they wouldn’t be able to pay attention to stock fluctuations the next morning. Good advice, indeed.
0 Responses
Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.