The past two weeks have been filled with opinions from experts on Facebook and its IPO. I would say about 66% lean towards the negative side and say to avoid them at all costs. Why? Because GM pulled their ads. Because a survey said 40% of their users will never click on an ad. Because experts on TV, who don’t even understand the web, feel that they are overvalued.
I’m not an expert when it comes to stocks or IPOs. I’m not going to write about P/E ratios, shares outstanding, or their market cap. I am going to write about their product and its influence over the web.
Pages Per Visit & Reach
Facebook has roughly the same amount of pageviews as Google per day according to Alexa. They are the 2nd most visited website on the web, just behind Google.
According to Alexa, Facebook is estimated to have 12.24 pages/visit . For comparison, Reddit is listed as having 10.6 pages/visit. So how accurate is this metric? Reddit’s blog post from January shows 13.00 pages/visit.
This means that Alexa likely undervalues by almost 2.5 pages/visit and Facebook could be closer to 15 pages/visit. As someone who runs a website and is a web developer, I assure you that 15 pages per visit is absolutely insanely good. Their users are addicted and love Facebook. Few sites or companies can pull off these kind of metrics.
Social is a Fad
Many experts believe that social media is a fad and/or Facebook could easily be replaced. I strongly disagree. Remember when web portals were going to be a thing of the past?
Yes, its true that Facebook is not the first social website. Friendster and MySpace came way before Facebook. Unfortunately, their websites lacked innovation and sophistication that their user base was desperately craving. Facebook forced the social platform to grow up and users graduated from MySpace/Friendster to Facebook.
Keep in mind that when you see commercials, Facebook and Twitter pages are often shown. Facebook does not pay these companies for the advertising. They are actually WILLING to showcase these two social networks because that is how important they are to advertising and reaching your customer base.
Today social websites are as important to the web as search engines. Speaking of search engines…
If Google has taught us anything, it’s that being the first to the market means nothing. It’s about who innovates and pushes the platform to the next level. Facebook did that with social and Google did that with search. Altavista = Friendster. Excite = MySpace.
The experts did not believe in Google when it IPO’d either:
To see a market capitalization valuing Google as a mature company is assuming a best-case scenario which isn’t a for-sure outcome. It still has a long way to go to justify growing into that kind of market value,” said Michael Cohen, director of research with Pacific American Securities.
Cohen added that in addition to Yahoo!, Google will face increased pressure from Microsoft, which has been stepping up its research and development efforts in its MSN Internet business.
Potential Growth
Does anyone realize how Google makes money? They make most of their revenue from advertisements. Guess what other companies makes most of their revenue from advertisements? Facebook. Some of my points here piggyback Venture Beat’s awesome article.
Charts here show revenue growth compared to similar IPOs. Their opinion is that Year over Year growth is going down, not up. This is obviously a bad sign, however the graph also indicates that Zynga’s growth year over year is better than Facebook. It’s amazing what you can make a graph do. That tells me absolutely nothing because Zynga would not exist without Facebook. Meanwhile LinkedIn has perhaps 1/10th the amount of pageviews of Facebook. So how much weight should we really put behind something like this?
The truth is that Facebook’s growth potential is insanely high. They haven’t entered China and their mobile platform is still in its infancy. Facebook realizes this and already is taking courses of action to correct this, namely by buying Instagram.
Their current revenue numbers could change drastically once they figure out mobile and their platform continues to mature.
Conclusion
What I wrote about here are taken from a web developer perspective. I honestly don’t care about an investor’s expert opinion when he may have a hard time understanding the product. He is looking at the revenue numbers and makes a judgement compared to the industry giants. What he sees on paper simply doesn’t add up to the hype or the valuation. That is completely understandable. Software and the scope of the web is not a tangible thing that people can easily wrap their head around.
As I said, I am not a stock expert. I don’t dwell on P/E ratios or shares outstanding. I don’t know what their stock is going to be at in 6 or 12 months, but I do know that Facebook, as a product, will be as popular as ever. And that, by itself, has to be worth something on the open market.