Facebook IPO: sizzle or fizzle?

The bigger they are, the harder they fall. Could that be true for Facebook?

Going by the history, social-media floats have never been roaring successes. LinkedIn’s stock market debut was impressive with $45 a share and a windfall of $351m but it was downward spiral thereafter.

Groupon and Zynga’s float was lukewarm and now their share prices have flopped.

So will Facebook be any different?

By the looks of it, maybe. After all, it is the world’s biggest social networking site. It has 800 million members worldwide and is expected to garner one billion users by the end of this year. The world’s population is just under seven billion.

As a reflection of having just under one seventh of the world’s population as users, the social media goliath is expected to sell off a 10 per cent stake for between $7.5bn (£4.8bn) and $10bn, implying an overall value of $75bn to $100bn.

Sounds good. But then again, Zuckerberg would now have to “dance to the tunes” of Wall Street, put all the quarterly results on the table and get advertisers pouring through the doors.

Martha Lane Fox, founder, Lastminute.com warns that Zuckerberg may have many mountains to climb if he wants to live up to his words of “running the company for users and employees and not for shareholders.”

“There are the results that you have to make public. There is a level of scrutiny and accountability that is unparalleled in a private company,” she told BBC technology correspondent Rory Cellan-Jones.

So as Facebook is expected to create history with its IPO, we mapped out the verdicts of business honchos.

Facebook float will sizzle in the stock market

Mathew Ingram, senior writer, GigaOM: “Facebook is the by far the biggest technology offering in decades, and everyone will want to have a piece of it.”

“I think it’s unlikely that Facebook will fizzle as an IPO in the same way that Zynga and LinkedIn arguably did, if only because the pent-up demand for Facebook shares is so massive. Whatever one thinks about the growth prospects for the social network, it is by far the biggest technology offering in decades, and everyone will want to have a piece of it — just in case it does succeed in becoming the social equivalent of Google. And even if its prospects are not that bright, it has 800 million users and a multibillion-dollar advertising business, and that is going to attract plenty of interest regardless of what the IPO price is.”

Farhad Divecha, director, AccuraCast: “Unlike Zynga and LinkedIn, Facebook has true potential and almost unlimited reach.”

“Facebook’s IPO plans are very ambitious.Their income is less than Google’s was when it went public, and yet they’re planning to raise a lot more capital. However, unlike Zynga and LinkedIn, Facebook has true potential and almost unlimited reach. If the market sees this potential, and the earnings Facebook could get out of it, then the floatation will be a success in the long run.”

Andrew Hornigold, Corporate Partner and Head of Technology at international law firm Pinsent Masons: “The rise of Facebook may see a fall in Google’s advertising revenue as advertisers switch over to the newer kid on the block.”

“The metrics surrounding Facebook are staggering – it attracted 800 million users within 8 years of launch and now has user numbers approaching 1 billion which generate an estimated revenue of $6 billion. Although this growth rate may have peaked in mature markets, with as much as two thirds of the world’s internet users still unconnected, a large market remains untapped.

The valuation is also surprising when compared with Google’s IPO valuation of $23bn in 2004. Google has since increased its share value by six-fold, however, the rise of Facebook may see a fall in Google’s advertising revenue as advertisers switch over to the newer kid on the block. Having said that, Google still dwarves Facebook in revenue terms at $38 billion, despite having a market value of ‘only’ $188 billion. It will be interesting to see how Facebook develops its business model over the next few years and, indeed, to see how Google responds to the competition. The battle for access to the internet is certainly set to remain a fascinating space for some time to come.”

Facebook float will fizzle out in the stock market

WPP chief executive Sir Martin Sorrell told the Guardian: “Perhaps it is worth $100bn, who knows. I thought $15bn was too much. More fool me.”

“The point is that Facebook is a social medium, not an advertising one, like search or display. It certainly is one of the most powerful, if not the most powerful branding medium. It is, however, a word of mouth or PR medium. You interrupt social conversations with commercial messages at your peril.

“Perhaps it is worth $100bn, who knows. I thought $15bn was too much. More fool me.”

Jim Rogers, CEO and chairman of Rogers Holdings told CNBC: “No, that kind of stock I don’t buy.”

“No, that kind of stock I don’t buy.They are usually very, very expensive. A lot of people like to buy expensive stocks like that, but I do not.

“I am interested in technology in some shape or form, but I can’t imagine buying any of them. They are a bit hot these days and they have been for two or three months, so that’s why I am short. I don’t buy high-priced stocks,”

Mark Baxter, director of IT and Telecoms recruiter Greythorn: “Zuckerberg rated as IT professionals’ most unpopular figure in the world of computing, beating Bill Gates and Steve Jobs.”

“To make good on a $100bn valuation, Facebook will need to show it can generate revenue in much greater volumes than have so far been achieved.  Valuing a business that has very few tangible assets and which is still wrestling with the best way to monetise its product will be very difficult and it’s quite possible investors will shy away if the valuation is particularly ambitious. 

“There’s also some uncertainty about the strength of Facebook’s brand. In research we conducted in December, Zuckerberg rated as IT professionals’ most unpopular figure in the world of computing, beating Bill Gates and Steve Jobs comprehensively to the top spot. Of course, building a successful business isn’t a popularity contest, but with a figurehead as prominent as Zuckerberg, personality will count for a great deal for investors.

“Facebook’s brand is fundamental to its success and while Zuckerberg is undoubtedly a visionary programmer, as a business leader he could potentially become a liability. The much publicised legal wrangles that followed the creation of Facebook both in reality and fiction are particularly damaging for a company whose policy on privacy and data usage has come under close scrutiny as it tries to develop its advertising revenue.”

• So will the Facebook IPO hit jackpot? Leave your comments below.