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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Facebook
May 29, 2012 at 10:30 AM

Wall Street won’t ‘friend’ Facebook

The big talker today is Facebook stock falling below $30, down nearly 23 percent from its May 18th initial public offering price. This as the rest of the market was higher. Part of this is pure casino, with options traders distorting the price by making bets on the future direction of the shares; part a rumored and potentially costly acquisition of Opera Software of Norway. But the falling price continues to reflect the fear that there’s no there there.

How does Facebook make money? Mostly by selling ads on its site. In an incredibly crowded online media market where few large sites will make sizable, sustained profits from advertising. Indeed, one of the problems with the IPO is that information about softening revenue was apparently shared only with a select few investors. Just before the IPO, General Motors opted out as an advertiser. Even so, Facebook brought in $3.71 billion in revenue last year, had net earnings of around $1 billion. The growth has been fast. But can it be sustained?

Do you ever click on the ads on Facebook? It reminds me a bit of Krispy Kreme, which went public in 2000 to a rapturous reception. But how many donuts can you eat? Do you eat donuts?

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February 2, 2012 at 9:48 AM

‘Like’ Facebook IPO?

The initial public offering for Facebook, scheduled for May, says much about the American economy. It’s the most anticipated business event of the year. Yet amid the largest unemployment crisis since the Great Depression, Facebook will create few if any new jobs. The social networking company employs 3,200 mostly highly skilled workers, largely in Silicon Valley. By comparison, Microsoft employs 40,000 in the Seattle area alone. General Motors has more than 200,000 employees across a range of skills. These are companies that actually make productive things. Facebook provides an online forum in which we amuse ourselves and check on former girlfriends and boyfriends. Once it must dance to Wall Street’s tune, Facebook will be under relentless pressure to hold down or even cut the number of employees.

In a nation with retrograde socio-economic mobility in America, the IPO will result in the usual group of winners. A lucky 1,000 Facebook employees who own shares will become millionaires. Depending on the deal’s valuation, the investment banks on Wall Street will pocket $500 million in fees, nearly half of Amtrak’s annual subsidy. As usual, average shareholders will be virtually shut out of whatever quick profits come from the early days of the offering.

(Here’s Wired’s annotated version of Mark Zuckerberg’s “open letter”).

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