There’s been a lot of chatter about Facebook going public. A lot of people don’t think it’s possible. And I tend to agree … or at least, I used to.
Social media sites like MySpace and YouTube usually end up getting purchased by bigger companies for one simple reason: they can’t financially stand on their own. It’s really difficult for a social media site to earn big returns because users are there to do other things. They don’t click on ads.
Cracking the Web 2.0 Code
Someone’s going to do it. Sooner or later. And of course there are many much smaller websites that are profitable. Just not IPO worthy.
There are a few reasons I like Facebook as an IPO opportunity …
1. Branding. There are a lot of good IPOs but the truly great ones happen with established companies that everyone knows. Companies that have products or services that a lot of people use and depend on.
2. Creativity. More than most social sites, the Facebook team has been willing to try out different (and sometimes controversial) things. And if you want to cook up the omelette that is profitability, you have to crack a few eggs.
3. Focus. Companies the size of Facebook eventually either go public, get bought out, or dwindle into obscurity. Sure, Mark Zuckerberg always answers the “IPO question” by saying they’re focused on building the company with no plans to go public. That’s savvy politics and it’s the right focus to have right now.
Facebook’s Edge Over the Other Guys
I also see some really basic and fundamental advantages that Facebook has over other social media sites. Advantages that could lead it to profitablility and a successful IPO …
1. Partnership Leverage. Facebook apps has done two things; it’s allowed third parties to make a great deal of money with facebook which never hurts your popularity. But it’s also given Facebook more access to multimedia (like YouTube videos) dynamically – which translates into all the fun, without all the bandwidth costs. The Facebook API should bring more of the same, but put Facebook in the earnings seat.
2. Effective Dull Space. Your typical MySpace page looks like someone threw up on a Jackson Pollock painting. Making it difficult to make anything stand out. Facebook’s interface is much cleaner, even with all the wild apps that people run. This makes it a lot easier to present advertising and actually have people notice it.
The Patience to Get There
Amazing “can’t miss” IPOs don’t happen everyday. They come along once every year or two. And they offer significant investing opportunities … think Google, Mastercard, Visa.
There are a ton of great companies to invest in, but grabbing these young stocks of world class companies brings in strong and sure returns in the first few years. So I’m always patiently looking at the horizon for the next one.
And maybe. Just maybe, in 2009 or 2010, it’ll be Facebook.