Jun 8, 2012

Facebook, by stealth, putting the fee into feeds

It may be a coincidence, but in recent weeks (after its float), Facebook appears to be taking a very different approach to users and clients than when it was a private company.

Adam Schwab — Business director and commentator

Adam Schwab

Business director and commentator

Mark Zuckerberg appears to be quickly finding out the pitfalls of public markets. Facebook shares continue to be sold down, closing yesterday just above its all-time low at $US26.81 per share,  giving the company a market value of $US56 billion. Before Facebook’s IPO, a company growing from nothing to be worth more than $50 billion in less than a decade would represent one of the great business success stories. But when you’ve got speculators sitting on losses of more than 30% in less than a month, the fanfare is somewhat dimmed.

The main benefit of public capital markets is to provide solid liquidity for owners. The liquidity allows public companies to trade on a higher earnings multiple than less liquid, privately held enterprises. In short, because investors can more easily turn their ownership interest into cash, they are willing to pay a premium for every dollar of earnings. The downside of public markets is that investors are far less patient and problems are magnified. While long-term private owners are willing to slowly build the intrinsic value of a business, investors in public companies will more closely look at quarterly results, or in the case of technical traders of high frequency traders, not consider the fundamental performance of a business at all.

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2 thoughts on “Facebook, by stealth, putting the fee into feeds

  1. Mark Duffett

    “solid liquidity”??

  2. zut alors

    I don’t get the point of Facebook.

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