There is much that can be written about Facebook’s disastrous IPO last month. Prior to its May 18 launch on NASDAQ, there was excitement on both Wall Street and Main Street with almost everyone wanting a piece of the company thought to be valued at anywhere from $76- $95 billion just days before its IPO. Momentum clearly seemed to be building with newspaper headlines claiming just one day prior to the launch that the sale would create more millionaires and billionaires as well as regional spending booms.
So how did the sizzle turn into a fizzle? And should we have been surprised?
An ominous sign that the offering could be overvalued came on May 16 when The Wall Street Journal reported that General Motors planned to pull its paid advertisements from Facebook. But even before that there were signs that the company was struggling to convince advertisers that it is beneficial for them to advertise through Facebook. One story, which had largely gone underreported until too late, was the company’s failure to connect with the many Facebook users shifting their usage to mobile phones where the company had only just started to sell advertising. Although Facebook had taken efforts since March to advertise on its mobile website, the chart below (measuring the sentiment of all articles within Dow Jones Insight specifically regarding Facebook and mobile phone advertising) shows little unfavourable sentiment practically right up to the IPO even though Facebook itself realized the implications of reaching out to this market too late. Coverage was in fact occasionally positive during weeks in March and April with news articles showing Facebook competing well in mobile ads against Google.
Only ten days prior to the launch was there significant attention paid to Facebook’s struggle to make money from mobile devices. The number of unfavorable news articles rose steadily in the days prior, peaking the week after the IPO (as the value of the stock, which remained virtually the same on the opening day, began to decline) with the sentiment almost entirely negative as the second chart indicates.
So should we have been surprised by such a disappointing performance by Facebook on the day of its IPO? The charts above indicate last minute apprehension by investors regarding Facebook’s ability to generate advertising revenue among an increasing mobile telephone audience, so for users tracking this sentiment through Dow Jones Insight, there probably would have been less of a surprise.
For Facebook, the struggle will remain: the amount of time users spend on the mobile version has now surpassed the time spent on the browser version and advertisers are increasingly uncertain about the effectiveness in advertising through Facebook in any form. (A study indicated that four out of five Facebook users do not buy products or services through the site.) Convincing advertisers not to follow the route of General Motors will be Facebook’s greatest challenge in the months ahead.