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The fever pitch of speculation building up to Facebook’s IPO less than a week ago has been replaced by doomsayers revelling in the 11 per cent price slump since Friday’s launch.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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Cameron in Nuneaton. Photo: Getty
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Why fewer of us want a long-term relationship ... with a political party

In 2015, 38 per cent of voters backed a different party to the one they supported in 2010. So what does the rise of swing voters mean for British politics?

For decades political parties have competed furiously for one of the great prizes of British politics: the affections of the swing voter. It wasn’t that long ago that there were relatively few political swingers: until the 1990s, fewer than a quarter of voters would switch parties from one election to the next.

Yet that once relatively rare breed is becoming increasingly common, which means party campaigners are going to have to come up with new tactical thinking. The British Election Study survey panels, conducted episodically over the last fifty years, are unique in that they are able to track the same voters from one election to the next, unlike more conventional opinion polls that only look at a snapshot of voters at a given time. Using these studies, you can identify the percentage of voters who switch their vote from one party to another between each pair of elections since 1966 when such data was first collected.

In 1966 only around 13 per cent of voters had changed their minds since the previous election in 1964. Since then, the proportion of swingers has been steadily increasing, and by 2015, 38 per cent of voters backed a different party to the one they supported in 2010.

The increase in swing voters is pretty consistent. The only exceptions are between February and October 1974, when (understandably) fewer voters changed their minds in eight months than switched in the preceding four years, and between 1997 and 2001, when the electoral dominance of New Labour under Tony Blair held back the tide for a time. These two exceptions aside, the increase has been constant election-on-election.

A lot of vote shifting can go on even between elections where the overall result remains stable. In 2001, for example, more people switched votes than in any election before 1997, with a surprising level of turmoil beneath the surface stability. While these largely cancelled out on that occasion, it set the stage for more dramatic changes in the parties’ votes later on.

So British voters now seem more likely than ever to jump from party to party. But who exactly are these swingers? Are they disillusioned former party loyalists? Or have British voters simply stopped getting into a serious relationship with the parties in the first place? We can get some insight into this using data from the yearly British Social Attitudes Survey, looking at the number of respondents who say that they do not identify with any of the political parties (party identifiers tend to switch much less often) when they are asked ‘Generally speaking, do you think of yourself as a supporter of any one political party?’ and then ‘Do you think of yourself as a little closer to one political party than to the others?’ if they say no to the first question. The graph below combines data from 1984 to 2013. Each line represents people who were born in a different year. Higher lines mean that there are more people who do not identify with a political party. So, for instance, voters born in 1955 started with very low levels of non-identification (22 per cent), which have gradually risen to 44 per cent in the latest survey. Most of the lines on the graph go up over time, which shows that almost all generations are falling out of love with the parties.

However, an acquired taste in swinging among the older generations is dwarfed by the promiscuous younger generations – shown by the dashed lines – most of whom never form an attachment to a party at all. Each generation in the data has been less committed to the parties than the previous generation was at the same age, with around 60 per cent of the youngest generation – those born since 1985 – expressing no attachment to any political party.

Since most of this change has been a generational shift, it may be a long road back for the parties. Loyalty to parties is often handed down in families, with children inheriting their parents’ commitment to a party. Now that this process has broken down, and younger generations have lost their attachment to parties, they may in turn pass on this political detachment to their children.

The majority of younger voters have simply never grown up with the idea of getting into a long-term relationship with a political party, so they may never settle down. Many Labour MPs were outraged when it turned out that lots of the new members who joined up to vote for Jeremy Corbyn had voted for the Green Party just a few months before, but this may simply reflect the political approach of a generation who see parties as needing to earn their vote each time rather than commanding lasting, even unconditional loyalty.

If Britain’s newfound taste for swinging isn’t going to disappear any time soon, what does it mean for party competition? In the past most people had settled partisan views, which seldom changed. General elections could be won by attracting the relatively small group of voters who hadn’t made up their minds and could very easily vote for either of the two main parties, so political parties based their strategies around mobilising their core voters and targeting the few waverers. While they worried about traditional loyalists not turning up to the polls, the parties could be assured of their supporters’ votes as long as they got them to the voting booth.

Nowadays, swing voters are no longer a small section of the electorate who are being pulled back and forth by the parties, but a substantial chunk of all voters. This helps to explain why politicians have been so surprised by the sudden rise of new parties competing for groups previously thought to be reliable supporters. The new parties that have entered British politics have also allowed voters to express their views on issues that don’t fall neatly into traditional left– right politics such as immigration (UKIP) or Scottish independence (the SNP). This in turn has posed a dilemma for the traditional parties, who are pulled in multiple directions trying to stop their voters being tempted away.

This may just be the start. If the number of swing voters stays this high, the parties will have to get used to defending themselves on multiple fronts.

This is an extract from More Sex, Lies and the Ballot Box, edited by Philip Cowley and Robert Ford.