Two weeks ago I told my Dad that I was going to subscribe to the Facebook IPO that’s happening tomorrow. My Dad was very against it. He had his reasons. My Dad is a very seasoned investor that looked at the fundamentals of any company he invests in to determine if they are worth the money at that price. Facebook’s valuation by his measure was CRAZY.
I thought I understood more than him though. That it’s not what Facebook is today but what it will be in the next 2 years that is what people are betting on. Still my Dad didn’t relent. He sent me reports from various investment banks that mark Facebook as a very risky stock to invest in. Of Analyst reports that in all honest truth you don’t really need because every other website/blog out there is talking about Facebook and doing the homework for you on whether it’s worth it.
In the end, I decided to listen to my Dad and sit this one out for now. I won’t be surprised if Facebook’s share price soared in the first day of its IPO, even if institutional investors are saying that it’s not a good buy. Yes there is lots of skepticism out there about it. Whether they will be able to make money from its mobile users, that their growth is slowing, that advertisers find their ads ineffective. All these kind of things about how their growth is slowing and even things about how the Class A shares being sold to public only account for less than 4% of the company’s voting rights.
What I do think though that I think some analysts are missing is that Facebook will potentially be even bigger in future not purely as an advertising business. When I was at the Web 2.0 Summit in San Francisco and watched Mark Zuckerberg talk, he talked about how his vision is to build an economy within Facebook where people could develop apps and run businesses ON Facebook. Just like how Zynga makes loads of money from its Facebook games. Once this economy is there, all they have to do is tax it just like how they “tax” Zynga. If they’re successful in doing that, Facebook will do something even Google hasn’t been able to do yet: To get their core revenue from another source apart from advertising.
Then… Facebook could potentially be worth many times more than its IPO valuation. So while I’m sitting the IPO out, I might look into buying into it in future