Facebook users are well aware of these phrases. The last couple of weeks have had Facebook looking for friends. Everyone now seems to be of the opinion that the stock was overvalued and that there were too many shares out there.
A recent Facebook poll at Andion Business Solutions showed that Facebook has some marketing or PR (public relations) issues. While 16% of people stated that they loved Facebook, a greater 26% stated that they used Facebook but did not LIKE it. That is still better than the under 8% of Facebook 900 million+ users that have actually bothered to LIKE its own page.
More importantly 67% of respondents in our poll did not like the IPO and/or liked Facebook less since the IPO. Does this matter? A couple of reasons why it may;
Facebook as been viewed as a nerdy and arrogant company (ever try to discuss an issue with them?)
Facebook will need to grow its revenue – big time – if it is to justify the IPO valuation.
Facebook will need to become more “Friendly” to grow its revenue as it cannot hope to just keep adding to its 900 million+ users
Facebook will now have to craft a story to correct the damage from the IPO.
Perry Marshall, a well know Google AdWords expert who recently co-authored a book entitled “The Ultimate Guide to Facebook Marketing”, had some thoughts to share. He differentiated Facebook from Google by pointing out that Google is a place (the search engine specifically) where people go to make a decision and Facebook is where people go to “avoid making a decision.” He also noted that Google was like the old Yellow Pages whereas Facebook is like a coffee shop. People go to Facebook to hang out, check on others who were hanging out and avoid mindless television with friendfilter extension mindless social media.
So should you be worried and stop using Facebook? Not at all, those of us in business know that stumbles are part of the path to success. Facebook will have to learn its lessons; realize that it is not the “cool” kid and that investors are not looking for “Friends” but for return. Let us not forget that Facebook also has over $15,000,000,000 (Billion) in its coffers from the IPO, so it can afford to fix things.
The days of “easy” valuation may be over for Facebook. It will now have to earn its valuations. People will notice when a company like GM pulls a 10 million dollar account. A group of pundits will form – cheerleaders and naysayers that the media will quote – whenever Facebook releases its quarterly results.
Keep in mind that a company needs a growth story of HUGE proportions to justify a valuation of 100 times earnings. If earnings are expected to be 1 billion this past year and if Facebook were to trade at 10 times earnings, it would have to grow these earnings by 30% per year for nine years to justify its IPO price. Obviously investors are looking for a return so they do not wish to “only” grow to that level; speculators got burned so they will be more wary going forward. Some of the “experts” are talking about it being a buy at $7.50, some are arguing that they would buy at $15.00 – those numbers are well short of the $38 issue price and considerably below the recent dip below $29.
This is hardly the argument for a “rational” stock market and we all know that there can be pain when you lose a friend. Having said that we think that the prospects for Facebook the business are better now that the company received a reality check – the prospects for the stock? What does a large latte go for at Starbucks these days?