Analysis / Frankly, Zuckerberg Doesn't Give a Damn

Although Facebook's founder made it clear ahead of the initial stock offering that he wasn't looking to please short-term investors, that didn't stop them from complaining when share value tanked.

"It's impossible to reach 500 million friends without making a few enemies."  So read the tagline of “The Social Network,” David Fincher’s 2010 film that captured the early days of Facebook. In a similar vein, the company's failed stock offering could be honored with its own special tagline: "It's impossible to reach a market value of $104 billion without making a few enemies on Wall Street who think your shares are as cursed as the plague."

After four months of trading, the results aren't encouraging. Last Friday, Facebook's shares plunged to a low of $18.06 – a 5.4 percent drop from the day's starting price and 52 percent lower than the initial stock offering price. Only 5 percent of companies with initial stock offerings between 2001 and 2010 can claim such disappointing results.

Since floating it shares, Facebook's stock has lost value on 44 days of trading and gained in value on just 28 days. The stock price's trading value continues to drop as new Facebook shares are released on the market. On November 14, the lock-up on early Facebook investors and company employees' shares expires and investors will be permitted to dispose of another 1.24 billion shares. Some analysts assert that the shares are still over-priced. They point to the slow-down in the company's revenue growth and users' increasing use of smartphones to surf Facebook, which undermines the company's revenues from web advertising.  Both factors, they say, are likely to continue harming the company's standing. In contrast, other analysts like Gene Munster from investment bank Piper Jaffray think now is actually the perfect time to invest in Facebook.

Amid all the tumult and disappointment that has surrounded Facebook's shares, one thing was forgotten: Founder and CEO Mark Zuckerberg foresaw this. Facebook openly declared that it never expected to be a company that satisfied its investors in the short-term. Zuckerberg doesn't care what happens to the share price, and by the signs of things, he isn't troubled by the company’s performance.  Facebook’s share offering was almost forced upon him, and he didn't want to take part in the hysteria that usually accompanies the activities of public companies.

In the prospectus that was presented to potential investors before the stock issue, Facebook detailed reasons for investors to be concerned about its future prospects: the slowdown in its revenues and the increasing shift of users to mobile phone-based Facebook surfing.  Consequently, Zuckerberg arranged for himself an unprecedented level of control in the company he founded. He foresaw the push back response he would receive from investors.  Moreover, Zuckerberg wrote explicitly in the same prospectus that Facebook is oriented towards long-term results and not for short-term successes measured in months.

Did all this help Zuckerberg to silence the waves of criticism against him and the performance of Facebook's shares? No, but that's life. Even when you have half a billion friends, you won't always find someone willing to listen.