Following the news that Facebook is postponing its long-awaited flotation until late next year at the earliest, some of the reasons why the company has so suddenly thrown the hype-machine into emergency reverse are becoming apparent. Word has it that senior Facebook execs got the wind up when sales targets were missed and unique visitor numbers flatlined and then declined. Martyn Warwick reports.
Reports from the US say that an organisation called PrivCo, whose raison d'etre is ferreting-out, from sources open and obscure, information about private companies - one of which is, of course, Facebook - has analysed papers circulated to potential shareholders by Goldman Sachs, back in January, which say that 'conservative' forecasts were for the social networking company to record upwards of US$4 billion in revenues over the course of 2011. Expectations were raised that Facebook's earnings in 2011 would be double what was achieved in 2010.
The documents, which were sent out to some interested parties when Goldman Sachs itself invested $450 million in Facebook at the start of this year state that Zucketberg et al would make 'at least' half or that $4 billion in the first six months of 2011. It didn't happen. Word has it that the actual figure for the first half was $1.6 billion. It is alleged that the missed target and the deteriorating US economy have spooked Facebook's senior management and they are retrenching at speed.
PrivCo's CEO, Sam Hamadeh, says "Facebook has seriously missed its own revenue forecasts. If this were a public company, its stock would be dropping dramatically, perhaps by a third overnight. This is consistent with Facebook's recent first-ever traffic drops in its core markets of the US, the UK, Canada and Australia.
We do not believe, given such loss of momentum and the new unknown competitive threat from Google+, that a Facebook IPO will occur in spring of 2012 or even within the next 12 months."
Meanwhile, Joseph Ranzenbach, the VP of Operations at PrivCo, twists the knife further by adding, "Facebook is now facing meaningful competition from a well-funded and viable alternative, Google+. Facebook's last private stock valuation of $80 billion plus may no longer be justified on a risk-adjusted basis." In other words, the Facebook IPO is no longer regarded as a shoo-in success - despite the fact that Facebook's COO, Sheryl Sandberg says an IPO 'is inevitable". Well yes, about as inevitable as a team from Antarctica winning the next Football World Cup.
The PrivCo report also talks about so-called "Facebook Fatigue" phenomenon whereby, despite the social networking company having some 750 million registered users, the percentage of those making repeat visits to the site are in decline. And that tail-off is most marked in the US. PrivCo says US monthly unique visitors have flat-lined since December 2010 and are now slipping into decline.
If, as now seems possible and even likely, Facebook's relevance to and popularity with it's core "yoof" audiences wanes as some new fad grabs their butterfly attention, the company may well find that it's power is waning, if only slightly in the first instance. That might be enough to give potential investors enough doubt about paying silly money in a volatile era and either reduce Facebook's frankly silly current valuation or delay the flotation until 2013 or even later - if it happens at all.
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