As shares of Facebook creep toward a 52-week low, there have been some grumblings from Wall Street investors who are quietly pushing for CEO Mark Zuckerberg to step down. Zuckerberg, the co-founder of Facebook and the only CEO it has ever had, is the quintessential college techie. The hardworking but free spirit attitude that comes with such a personality has done wonders for all kinds of Web 2.0 companies, the most prominent being Zuckerberg’s Facebook. However, now that Facebook has become $FB, some traditional Wall Street business investors are getting annoyed with Zuckerberg’s perceived (and perhaps, actual) lack of business acumen.
Perhaps we should have seen this coming months ago. It has been stated that Zuckerberg didn’t even want to pursue an IPO; instead, his hands were tied by SEC regulations (Facebook had reached over 500 individual secondary market share owners, which triggers a full IPO). In fact, Zuckerberg’s own statement in the Facebook IPO prospectus says that his initial goals were not to build a business, but rather a service to help connect the world:
“Facebook was not originally created to be a company. It was built to accomplish a social mission.”
“We don’t build services to make money; we make money to build better services.”
“We don’t wake up in the morning with the primary goal of making money.”
In the 21st century Wall Street, that type of idealism is met with scorn. It’s all about the Benjamins’, and so far Facebook has performed abysmally for its investors. The stock closed down over 4% today, settling at $19.11 per share (with a further decrease in after-hours trading). This is just above the 52-week low of $18.75 a share reached just two days prior. That’s a whopping 50% decline from the IPO price in just three months. Sure, people can argue that $FB was way overvalued due to an inordinate amount of media hype, but even that shouldn’t prop up a stock two times its market value.
No, the problem with Facebook is that its revenue growth is shrinking and its costs are increasing. Zynga, the company built entirely on Facebook’s applications platform, has been performing horribly lately. This is a major problem for Facebook, considering that 12% of its previous quarter’s revenue came from its application marketplace (i.e. – virtual currency), and the main driver of that was Zynga. Second, as more and more members start using their smartphone to view Facebook, revenue streams will decrease even further. And last, Facebook even admitted earlier this month that 83 million of its 950 million accounts are fake. And this doesn’t even take into account how many inactive users there are.
Bottom line is that Facebook’s bottom line, while still profitable, is shaping up to be far from a tech investment panacea for investors still reeling from the Great Recession. Facebook is no Google or Apple, and even though it’s unfathomable that users could shun Facebook in just a few years, it happened in the past to MySpace and Yahoo.
Still, Zuckerberg should get an immense amount of credit for revolutionizing the way we use the internet to connect with each other. For the longest time all we had was email, chat rooms, and instant messaging. With Facebook, Zuckerberg did what Steve Jobs always strove to do – invent products that people will want before they even know they want them. This, tied in with the fact that a large reason for our continued economic depression is Wall Street’s bloodthirsty insistence on quarterly results rather than guiding a long-term investment strategy, allows us to give Zuckerberg some space. Even though he might be pissing off the ‘Ole Boys Club of Wall Street execs, he at least is still extremely popular within his own company – it’s why he alone still controls a majority vote, something almost unheard of for a company of Facebook’s size. Let’s see how $FB is doing a year from now as the company begins to fully implement Timeline and works on figuring out ways to expand mobile revenue.