Will Facebook's Shares Be Worth The Price?
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And I'm Renee Montagne. Facebook filed papers for an initial public offering last night. And this morning, it's finding out how many friends it really has. Facebook's revenues are disappointing many analysts who had expected the company to be earning more from advertising than it actually is.
NPR's Steve Henn has more.
STEVE HENN, BYLINE: With more than 840 million members, and nearly half a billion people logging into Facebook every day, Debra Aho Williamson was convinced Facebook had already become an advertising juggernaut.
DEBRA AHO WILLIAMSON: We had been expecting Facebook to have total revenue of 4.27 billion in 2011. And you know, clearly, they didn't meet that expectation.
HENN: Facebook fell almost half a billion dollars short. Williamson's an analyst for eMarketer, a firm that tries to estimate the earnings of privately held tech startups, like Facebook and Twitter. In this case, her estimates were too optimistic.
WILLIAMSON: I am a little bit disappointed. It shows, I think, that Facebook still has a lot of growing to do as a company.
HENN: Williamson says to live up to the sky-high expectations among potential investors, Facebook may need to do a better job convincing big brands to spend money advertising on its site.
WILLIAMSON: Most brands already have a Facebook page. And if you talk to most major companies, they 100 percent believe that Facebook is where they want to be - to market to their consumers, to talk to them, to deliver coupons, to interact, to engage. But they oftentimes want to do it for free.
HENN: In his letter to potential investors, Mark Zuckerberg, Facebook's co-founder and CEO, said he didn't set out to build a business. Instead, he said Facebook began as a way to transform how we communicate and share with each other. And after Facebook's IPO, Zuckerberg will still be firmly in charge. He will control more than 50 percent of the voting stock, and Facebook won't be required to appoint an independent board of directors.
KATHY SMITH: This issue of control, and Mark Zuckerberg's stake, is a two-edged sword.
HENN: Kathy Smith is at Renaissance Capital.
SMITH: The downside is, we'd like to see an independent board. The upside of his control is that this is his baby, and there's nothing else that he has but Facebook.
HENN: Smith advises hedge funds and institutional investors about upcoming IPOs. She says Facebook will be expensive by any measure. Anant Sundaram agrees. He's a corporate valuation expert at Dartmouth's Tuck School of Business. He says if you look at Google and Facebook taken together, and ask what would they have to earn in the coming years to justify their current stock prices, the answer is remarkable.
ANANT SUNDARAM: These two companies would have to account for a humongous portion, something like one-fifth to one-fourth of the global advertising revenue base across all media - print, billboards, radio, television, Internet. And that, to me, seems extremely aggressive.
HENN: Still, unlike some other Internet companies that have gone public recently, Facebook is unambiguously profitable. It earned a billion dollars in after-tax income last year. It has cash and marketable securities worth nearly 4 billion. Its IPO will raise 5 billion more. It's not about to go out of business.
Still, analysts say that doesn't mean Facebook shares will be worth the price Wall Street bankers are likely to charge for them.
Steve Henn, NPR News, Silicon Valley.
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