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The fever pitch of speculation building up to Facebook’s IPO less than a week ago has been replaced by doomsayers revelling in the 11 per cent price slump since Friday’s launch.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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Voters are turning against Brexit but the Lib Dems aren't benefiting

Labour's pro-Brexit stance is not preventing it from winning the support of Remainers. Will that change?

More than a year after the UK voted for Brexit, there has been little sign of buyer's remorse. The public, including around a third of Remainers, are largely of the view that the government should "get on with it".

But as real wages are squeezed (owing to the Brexit-linked inflationary spike) there are tentative signs that the mood is changing. In the event of a second referendum, an Opinium/Observer poll found, 47 per cent would vote Remain, compared to 44 per cent for Leave. Support for a repeat vote is also increasing. Forty one per cent of the public now favour a second referendum (with 48 per cent opposed), compared to 33 per cent last December. 

The Liberal Democrats have made halting Brexit their raison d'être. But as public opinion turns, there is no sign they are benefiting. Since the election, Vince Cable's party has yet to exceed single figures in the polls, scoring a lowly 6 per cent in the Opinium survey (down from 7.4 per cent at the election). 

What accounts for this disparity? After their near-extinction in 2015, the Lib Dems remain either toxic or irrelevant to many voters. Labour, by contrast, despite its pro-Brexit stance, has hoovered up Remainers (55 per cent back Jeremy Corbyn's party). 

In some cases, this reflects voters' other priorities. Remainers are prepared to support Labour on account of the party's stances on austerity, housing and education. Corbyn, meanwhile, is a eurosceptic whose internationalism and pro-migration reputation endear him to EU supporters. Other Remainers rewarded Labour MPs who voted against Article 50, rebelling against the leadership's stance. 

But the trend also partly reflects ignorance. By saying little on the subject of Brexit, Corbyn and Labour allowed Remainers to assume the best. Though there is little evidence that voters will abandon Corbyn over his EU stance, the potential exists.

For this reason, the proposal of a new party will continue to recur. By challenging Labour over Brexit, without the toxicity of Lib Dems, it would sharpen the choice before voters. Though it would not win an election, a new party could force Corbyn to soften his stance on Brexit or to offer a second referendum (mirroring Ukip's effect on the Conservatives).

The greatest problem for the project is that it lacks support where it counts: among MPs. For reasons of tribalism and strategy, there is no emergent "Gang of Four" ready to helm a new party. In the absence of a new convulsion, the UK may turn against Brexit without the anti-Brexiteers benefiting. 

George Eaton is political editor of the New Statesman.