According to the Sunday Telegraph newspaper yesterday "Morgan Stanley, Facebook’s lead financial adviser, ended the day with 162m shares, worth $6.16bn. Other banks including JP Morgan and Goldman Sachs also bought shares, ending the day with $3.2bn and $2.4bn holdings respectively" which is kind of worrying when you step back and realise that Wall Street were propping up the share prices on the much hyped first day of trading. Indeed, as a result of that $100 billion Facebook valuation, there is now much talk of another tech bubble and whether or not it's about to burst.
Writing in The Guardian, Michael Wolff is of no doubt that the Facebook IPO is indicative of a bubble but is doubtful that it's anywhere near bursting point as of yet. "The Facebook IPO – by, in effect, printing a $100bn in new, spendable, money – further inflates this bubble" Wolff insists, explaining that "investors have spent some $16bn in cash on Facebook shares, valuing them at $104bn, a part of which Facebook will now spend on other companies, which will increase their value, as well as the value of all other like-minded companies."
Alex Mifsud, CEO of payments company Ixaris, even goes as far as to buck the media commentator trend and suggest that Facebook is under, not over, valued. "Facebook has developed a number of innovations for monetising the platform which have the potential to increase its profits exponentially" Mifsud says "Facebook Credits are a prime example of this. Facebook keeps 30% of all proceeds generated through this virtual currency. In fact, the majority of Facebook’s revenue comes from people using Credits to buy virtual goods within games". With fast approaching a billion users, Facebook has the potential to drive incredible profits from retailers establishing e-shops within the Facebook platform.
But things are not all rosy in the Facebook garden, and there are some worrying signs that Zuckerberg and his minions have much work to do in order to plant the seeds of healthy profit in the years to come. Take the results of a global survey undertaken by the Greenlight digital marketing agency which reveals that a staggering 44% of respondents would never, repeat never, click on Facebook sponsored adverts and 30% strongly distrust the social network with their personal data. The Greenlight Search & Social Survey (2011-2012) wasn't all bad news for Facebook with 50% saying they use the service and ranking as the third most popular website behind Google and YouTube, and the second most popular website accessed through a mobile phone, but the warning signs are there that it cannot take success for granted.
"Facebook's advertising programme has an upward struggle” according to Hannah Kimuyu, Director of Paid Media at Greenlight. Especially when only 3% of respondents said that they regularly clicked on Facebook advertisements or sponsored listings. The most popular ad format for Facebook is the sponsored story model though, which Greenlight reports as delivering an average 32% decrease in cost per acquisitions along with a 30% increase in conversion rates.
Did you buy shares in Facebook? Do you click through the adverts on the social network? Is the new tech bubble in danger of bursting thanks to the inflationary pressure of the Facebook flotation? Join the DaniWeb conversation and share your thoughts on the matter...