So, history will be created in the Global stocks markets tomorrow.
facebook will list, and my personal belief is that it will be valued at somewhere between the 122-127 Billion US$ valuation.
Public and expert opinions are split on this historic IPO. Some people like Steve Wozniak – the Apple Co-Founder, think that facebook at any price is worth it! Others (the usual stuffy Wall Street bankers) think that it’s too expensive.
This is my take on the facebook IPO:
F = Future
In 1993, on a Sunday afternoon, a gentleman called Manish Chokhani of Enam Securities told me about a software Company called ‘Infosys’ that Enam securities was planning to underwrite and hand hold to IPO.
Manish told me, “Alok, if this Company does well, it will be a nice stock to own.”
Funnily, the Infosys IPO devolved (was not fully subscribed) and Enam being the merchant bankers to the Company, were forced to own a lot more shares than they had to!
The rest is history.
I think the facebook IPO is the window to jump into the future.
Just look back and think objectively – has any Company that you know done so much, so well and so fast in such little time?
To me, the facebook IPO is like the IPO of Infosys, Google, Apple etc.
A = Advertising
So, GM is pissed off that facebook does not work.
Ha!
Do people even want to buy GM cars?
It’s beyond a silly GM to understand that facebook is not TV or Radio or a Hoarding or a Yahoo. It’s not a Google. It’s facebook!
Advertisers will have to invest time and money and figure out how to make people notice them.
When television started, advertisers of print media laughed at the format. Check out how that industry has changed. Simply because the ad format needed an invention. The stupid print ad became a 30 second Television Commercial.
Smart ad agencies will create smart advertising for smart clients on a media platform where 900 million people collide each month!
The facebook IPO gives the world a chance to buy into the future of advertising.
C = Country
facebook has 900 million registered users.
I’m guessing a good 400 million log into the site each month, at least once.
Now, how and where can you buy a Country that is the third largest in the world, after China and India?
Is 100+ Billion dollars of any significance when you look at facebook from this perspective?
No one ever in the history of mankind has assimilated so many people, so harmoniously in one place and made them stay there.
This is a unique opportunity that the facebook IPO offers!
E = Economics
So, think:
Are you worth 100 US$ as an individual?
I’m sure you would say, “Hey! I’m worth millions!!”
Now, extrapolate that number:
If you just consider that Facebook has 900 million people, each worth just 100 US$, that’s an enterprise value of 90 Billion US$!
It’s not a staggering amount of money individually, but put together, it justifies a valuation of facebook at 125-135 Billion US$!
P.S. – I believe that anyone in the world who can access facebook via a mobile or PC has an ‘economic value’ far higher than 100 US$ per head.
And facebook will find a way to exploit and improve that 100 US$ figure.
B = Business
Now consider the potential of ‘Business’ on facebook.
I see a Linkedin, a Google, a Yahoo, an ebay, etc etc – all being sub sets of facebook.
Just because facebook does not offer you ‘search’ today does not mean that it never will! It has the ability to smash Google at its own game.
Imagine a facebook ‘listings’ that allows you to list and buy what you are looking for?
Similarly recruitment. There are recruiters who are going to employ people on the basis of their ‘sociality’ (how they behave, what they say, how they contribute) and facebook offers the best hunting ground to them!
The age of the ‘monologue resume’ is over. The age of the ‘interactive social resume’ has arrived.
If you add up the various businesses that facebook actually combines, you will be surprised to find that the facebook IPO looks like cheap change.
O = Offensive!
Yeah!
Didn’t get the point?
Well, ask the communists in China what they think about facebook!
They HATE it.
And that is why they shut it down. That is why facebook is not allowed to operate in China.
Is it because it has offensive content?
Well, quite the contrary!
facebook is offensive to oppression, to coups, to dictators, to mad politicians who don’t allow the ordinary citizen to speak and express her mind!
Imagine what would happen if all the micro-bloggers, poets, writers and photographers of China were actually allowed to post their content on facebook – for the world to see?!
China would collapse.
P.S. – Twitter, in my humble opinion, brought Egypt and Libya down.
I say facebook is valuable for a trillion dollars only because it holds the power to stop global political anarchy and oppression.
O = Opportunities
Just look at the eco-system facebook offers.
I say it’s the world’s largest opportunities marketplace.
You can start a games Company and list for billions just running off facebook (Zynga).
You can start small stores and mini businesses (like a friend Avantika Kapur does here – https://facebook.com/TheLavenderCloset)
Now, look ‘outside’ of facebook.
Zillions of sites use facebook ‘plugin’s’ like its commenting box API to enhance engagement on their sites.
facebook makes things get noticed. It may be a new book, a new travel destination – hey a new restaurant!
facebook also offers the ability for ‘social media personalities’ to create personas for themselves and influence and enthrall audiences.
I say that the next Oprah Winfrey will be a facebook celebrity – not someone on TV.
Think of facebook credits! It’s a global currency!
I believe that the scope, size and dimension of facebook is still not understood because we look at it as a ‘social network’ for friends.
Once we understand that it’s the place that the world hangs out on, the opportunities such a proposition offers, will loom very large!
K = Knowledge
In the next twenty years, I think facebook will be the ultimate and most important storehouse of knowledge.
That’s because each of us in some way or the other keeps adding valuable insights, opinions, facts and observations to the facebook repository every hour.
Do you want to see what Monasteries in Ladakh look like?
Sure – try finding out on Google search.
You’ll find splendid images of Monasteries in the Ladakh region. Now, what use are these images to you if you were planning a trip? Do you want to know if these Monasteries have sleeping facilities? Restaurants? Toilets?
On facebook, there will be logs, photos, experiences and live people who will have ‘been there, done that’ long before you began any of your contemplations. Finding them on facebook and sending them a polite message with a question will give you knowledge that will not be available anywhere.
The facebook IPO brings the world’s largest repository of knowledge into your hands!!
The facebook IPO has many different hues and colours than you think.
It’s a phenomena, not just another ‘Initial Public Offer’.
******
Neeraj Mehta
Amazing read… Totally worth it…
Snehal Nimje
Hey Rodihood
I agreee, the stock is going to get over-valued to 120B coz of the hype but it will be difficult to stay on that value for few quarters atleast. Long term its a good bet.
Also, GM was specifically speaking of facebook Ads. Ofcourse facebook provides numerous channels for brand to build audience/following. But the ads fail to perform coz we go to facebook to catch on friends and celebs. Not push ads. What do you think about those tiny ads with smiling faces in formals.
Same will be with games. Thats y in-game currency/goods makes more sense than ads.
How do Indians see in-game currency and digital goods in games ?
Vibhor Gupta
Alok, I don’t entirely agree as to me it looks like steep valuation at this stage which prices in the next 4-5 yrs.
We are not talking about FB as a company which is indeed great with all its user base that it has built in such a short span. We are talking about the valuation. My take is the stock can be available at cheaper valuations during the next 1 yr. Infact Merchant bankers would be looking to take everything available on the table for the next 4 yrs riding on the hype and hoopla. That’s my take on this.
Forget about GM, I am not sure how much the FB ads work even for the e-commerce companies. I am still to make any buying decision based on FB ads that play on my page. People are creating communities around their brands but they themselves are not sure if the amount they are spending on maintaining and updating their FB pages is giving them enough mileage (read ROI). Its like a necessary evil. Just like any company has a website homepage, they need to have their brand presence using FB page. There will be some people who will come to know about the brand but very few will make their buying decisions using FB updates.
I also beg to differ on the point where companies will use FB profile for hiring. They may as well use LinkedIN but those days are still far-off when they start using the FB profiles and the activity data for making a decision on hiring.
ARINDAM RAY
As far as ads are concerned, I totally agree with Alok. FB is going to be one of the strongest platforms for advertisements, eventually, simply because of its interactive capacity. Our mind blocks against a new format for advertisements might provide the initial resistance but eventually it is bound to take over. There might come a time when consumers would be able to place direct and instant queries based upon the ads and therefore this interactive platform can also provide them with some sort of a decision making tool in the future, which is not possible in case of a TV or a print media format.
Suresh Jayanthi
FB closed flat at 105B USD valuation at the close of trade yesterday. https://news.yahoo.com/facebook-falls-flat-public-debut-204058611–finance.html
Of all the things you said – this sounds like a real good way it will pan out – ‘Finding them on facebook and sending them a polite message with a question will give you knowledge that will not be available anywhere.’
I sincerely hope it pans out that way. A global living mother lode of knowledge that can be mined by others. A bit like the Tree of Souls in Avatar.
The key point is how will FB make money and increase its valuation? Without further violating privacy.
Vibhor Gupta
Here we are now. Couple of days into FB opening for trades. Stock is down 10% today and everyone is finding FB “expensive” today.
https://www.fool.com/investing/general/2012/05/18/5-numbers-that-should-scare-facebook-investors.aspx
Have a read.
This came as a news to me that FB derives 15% of its revenues from Zynga.
Nisarg Shah
Alok,
Do you see a reversal from the way the stock is tumbling down? I have invested money in it, with the same sentiments as you had while writing this article.
Everyone here (NY / USA) is now talking about it being nothing more than a FAD. What scares me (from this experience) is that if FB does not get the valuation which was being talked about Pre-IPO, the whole Tech scene is in trouble.
Just once, when it was thought that not a huge revenue should not be a deterrent to the value of a company, we are seeing that belief being thrashed left, right and every possible way.
NOW everyone is raising a finger to everything that is virtual. That looks like a scary phenomena, esp. when we are in a world that is so connected.
What are your thoughts on the same?
Best,
Nisarg
Alok Rodinhood Kejriwal
Nisrag, I dunno if you made an investment in FB to hold for 1 hour, 1 day, 1 month, 1 year or 1 decade?
If it was for less than 1 decade, then its clearly a mistake.
Nisarg Shah
Hello Alok,
That helps. Thanks!
I hope it works out well in the long term too, and coming it from you, I can now rest assured!! 🙂
Thanks & Good Morning,
Nisarg
Suresh Jayanthi
Ten Years, Ha, Ha!
Like John Keynes said, ‘In the long run, we are all dead.’
Siddharth Sethi
Nisrag, Alok,
You look at mutiples and compare it to other sexy tech companies like Apple and Google , the stock price starts looking real steep and If you believe that Facebook is in a game of its own with no references and will change advertising models as it has changed social media then it starts looking real cheap.
I believe that the biggest challenge is to get the people to like your product, that’s real had work and 90% of the job ;Revenue is improvisation(get some smart people and some or the other idea will stick sooner or later)
So decide what are you ,a believer or a trader.If you are a trader ,cut your losses and get out and if you are a believer , make another drink and cheers to that!
Suresh Jayanthi
Nisarg:
Recommended: A stiff drink for FB investors before reading further.
Looks like it is easy to create an audience and difficult to generate revenue out of them for the newer social media enterprises….
https://www.technologyreview.com/web/40437/?p1=A3.
Hemant Pulijala
Gud article Alok :)..Facebook valuation might be looking steep and people might be feeling it as a FAD now,but like Alok pointed out in the long run Facebook will be the winner..lambe race ke ghoda bhai log 😀
Alok Rodinhood Kejriwal
Nisrarg – did u buy when the stock was down?
Alok Rodinhood Kejriwal
Hahahahahah – In just 1 year its back!!
Alok Rodinhood Kejriwal
🙂 Check momentum now :-))
Alok Rodinhood Kejriwal
Thanks Rohit! We seem vindicated!!
Ankit Sawant
Seems like sir you definitely will be having the last laugh in longer run 😛
Alok Rodinhood Kejriwal
And it took just 2 years to prove my call right 🙂
Amar Pratap Singh
Awesome read….Thank u sir.
Chetan Potdar
Superantastic insights.