Facebook status: down, but far from out

Reasons to be upbeat.

The fever pitch of speculation building up to Facebook’s IPO less than a week ago has been replaced by doomsayers revelling in the 11 per cent price slump since Friday’s launch. Should Mark Zuckerberg and the rest of Facebook’s newly minted billionaire founders, and almost 1,000 paper millionaire employees, be concerned by the drop since listing? No, there are several reasons to be upbeat.

The doomsayers have loved the downward stock slide. Stories of the NASDAQ’s technology wobbles and Morgan Stanley having to keep the stock price up soon after its listing are what you’d expect. People love the fact that the bigger they are, the harder they fall.

But there are several reasons for Facebook’s stockholders to take heart.

Firstly, let’s not forget Facebook’s $38 listing price was well above its initial expectations. Only weeks before the May 18 IPO, it was forecast to sell 337.4 million shares for between $28 and $35 per share, raising between $9 bn and $12 bn.

Five days before the list date, it raised the total number of shares to 421.2 m and ended up listing at this much higher level – netting $16bn and giving it a market capitalisation of about $104bn at listing.

To put this into context, Google offered 19m shares in its 2004 IPO, listing at $85 per share. It raised $1.67bn on market capitalisation of US$23 bn.

This gave Google the war chest it needed to launch a vast slew of mergers and acquisitions in the following years, including the high-profile purchase of YouTube in 2007.

Facebook’s IPO has raised 10 times Google’s amount from the sale, with market capitalisation three times Google’s – giving a serious steroid boost to its M&A budget. Facebook’s pre-IPO purchase of Instagram will be the first of many, helping the world’s most well-known social networking site, cement its market-leading position.

Interesting research from boutique researcher WealthInsight, The Facebook Elite, suggests that even if Facebook’s IPO may be overpriced, it does not mean that the company is not highly valuable.

Facebook’s earnings were $972m for the 12 months up until March 2012. Off revenue of $4.0bn, this represents a high profit margin of 24 per cent, putting it in line with the likes of Apple (30 per cent) and Google (27 per cent).

Facebook also makes more money from advertising than any other website and accounts for 28 per cent of display ads seen online. As more and more advertising moves online, Facebook’s revenues will almost certainly increase. Facebook had 901 million monthly active users (MAUs) and an average of 526 million daily active users as of 31 March 2012, an increase of 33 per cent and 41 per cent, respectively, compared to March, 2011. At the same time, Facebook’s 60 per cent penetration rate of internet users in the US and 45 per cent penetration rate of the world’s 2 billion internet users, together suggest that Facebook’s user base still has significant room for growth.

Facebook’s stock price will continue to attract attention, and will no doubt suffer periodic dips. Google suffered a big drop in late 2008, but now sells for more than $600. Facebook’s stocks may have dipped, but they are likely to rise far further.

Nicholas Moody is the editor of Private Banker International at VRL Financial News. He has written more about Facebook's recent venture here.

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When Theresa May speaks, why don’t we listen?

Not many Prime Ministers have to repeat themselves three times. 

Theresa May is the candidate of Brexit and market panic. She ascended to the highest office because, in the fraught weeks after Britain’s vote to leave the European Union, she represented a safe haven for nervous Conservative MPs, the dependable family mutual that remained open while all along the Conservative high street, her rivals were shutting up shop.

Her popularity, as revealed in high poll ratings outside Westminster, too, owes itself to the perception that she is a serious politician in serious times, happily installed atop the ship of state to guide it through the rocky waters of Brexit negotiations.

May’s premiership has been defined by market panics of a different kind, however. The first is in the currency markets, where sterling takes a tumble whenever she pronounces on Britain’s future relationship with the European Union, falling both after her conference speech on 2 October and after her start-of-the-year interview with Sophy Ridge on 8 January. The second is in the opinion pages, where May’s stock oscillates wildly from bullish to bearish.

In the first months of May’s government, she was hailed as an Anglo-Saxon counterpart to Angela Merkel: a solid centre-right Christian democrat who would usher in a decade of conservative hegemony. More recently, she has been compared to Gordon Brown because of her perceived indecisiveness and repeatedly accused of failing to spell out what, exactly, her government’s Brexit objectives are.

In a symbol of the splits on the right between the Brexiteers and Remainers, the Economist, that bible of free-market globalisation and usually a reliable tastemaker as far as Westminster groupthink is concerned, began 2017 by dubbing the Prime Minister “Theresa Maybe”. Though May’s Downing Street is less concerned with the minutiae of what goes on in the public press than David Cameron’s, the contention that she is indecisive was a source of frustration.

There is an element of truth in the claim that May still views the world through a “Home Office lens”. One senior minister complains that Downing Street considers the Ministry of Justice as a “rogue outpost” of May’s old stomping ground, rather than a fully fledged department with its own interests and perspectives.

Yet even the most authoritarian of home secretaries would struggle to secure a conviction against May on the charge of opacity as far as her Brexit approach is concerned. She has hit the same grace notes with the reliability of a professional musician: Brexit means freedom from the jurisdiction of the European Court of Justice and control over Britain’s borders, two objectives that can only be achieved as a result of Britain’s exit not only from the EU but also the single market. This was confirmed on 17 January in the Prime Minister’s Lancaster House speech in London.

David Cameron used to say that he would never have “a people”. Certainly, there is no Cameroon tendency in the country at large to match the generation of council house residents that became homeowners and lifelong Conservatives because of Margaret Thatcher and Right to Buy. However, there is, unquestionably, a Cameroon people or faction to be found at almost every rung of London’s financial services sector or at editorial meetings of the Economist, though it as at the Times and the Sun where the treatment of May is at its most noticably rougher than in the Cameron era. 

Michael Gove, her old rival, is not only employed as a columnist by the Times; he enjoys the confidence and admiration of Rupert Murdoch. That the Times secured the first British interview with Donald Trump was a coup for Murdoch, an old associate of the president-elect, and for Gove, who conducted it. It left May in the unlovely position of making history as the first prime minister to be scooped to a first meeting with a new American president by a sitting MP in modern times. It also attested to a source of frustration among May’s allies that she is, for all her undoubted popularity, still ignored or doubted by much of the right-wing establishment.

That condescension partly explains why her words are often listened to briefly, acted on hastily and swiftly forgotten, hence the pound’s cycle of falling when she makes an intervention on Brexit and rising shortly thereafter. The Lancaster House speech was designed to break this pattern. Downing Street briefed the most potent paragraphs at the weekend so that the markets could absorb what she would say before she said it.

As a result, the pound rallied as May delivered her speech, which contained a commitment to a transitional deal that would come into effect after Britain has left the EU. Some financiers believe this arrangement could become permanent, which once again demonstrates how much they underestimate May’s ability to enforce her will.

Being underestimated by Cameron’s people, in Westminster and the City, has the unintended effect of shoring up Theresa May’s position. A prolonged and sustained bout of panic would increase the pressure for a soft landing, but its absence makes it harder for Labour to oppose her effectively, although it has largely acquiesced to the Tory plan for Brexit, at least as far as membership of the single market is concerned. 

Yet for all the plaudits that the Prime Minister’s Lancaster House speech attracted, for all her undoubted popularity in the country, she is in the anomalous position of being a Conservative Prime Minister who has priorities on the European stage other than the preservation of the City of London and to whom Rupert Murdoch is not a natural ally.

As such, she may find that her deadlier enemies come from the right.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.