Facebook Goes Financially Social - II

Financial markets can make mistakes. They can even create bubbles and burn what it took them decades to build. But in a single IPO with plenty of unusual issues, the market has reliable mechanisms to deliver its opinion. And that is what happened with the Facebook IPO. The market, the current financial market, the one that is digesting all the excesses of the recent past, said that they do not want more doubts about the value of a company and the price of their shares. If you want to raise a lot of money from the market, you need to show really good financials. As good as your online competitors. This was not the case for Facebook, so the financial market decided to give them more time and see what they will be able to do in the future.

But how is it possible that an online company with more than 900 million registered users is not able to succeed in their IPO? The first answer is because of the price of their stock. It was too high compared with their fundamental financials and ratios. The second answer is that Facebook could generate greater revenue than they are currently, just by taking another approach to their incredible success. What I mean is that if you are the one and only in the social media arena, try to focus just on this fantastic achievement and do not try to compete in other areas where you do not have the expertise.

I am talking about advertising and the fact that if Facebook could just partner with Google to monetize all their online traffic, they could cut their staff by fifty percent and become one of the best internet companies ever in terms of profitability. They would have an incredible business model based on user content generation with high profit margins. But egos play important roles in the differents acts of a company's life. Facebook has demonstrated that their battle for the online advertising business did not come from an accurate business strategy. Trying to be more GAP than GAP is what killed Fruit of the Loom, so trying to be more Google than Google in the online advertising business could kill Facebook. Google has to analyze their G+ strategy in the same framework, but Google has the advantage that they are a cash machine.

So, what happend if you bought into the Facebook IPO? You will need to wait some years to see how the company manages their growth. Until shares go over the IPO price, we will be vigilent about Facebook's strategy to monetize their huge online traffic and how the company reduces their expenses to increase profit margins. The sooner Facebook understands that they will no be able to compete with Google in the online advertising business, the better for their shareholders, the new "registered" users that Facebook has to take care of.

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