One of the main themes of discussion on this morning's 'Morning Joe' was the dramatic collapse of Facebook's share price - from just over $38 a share at its initial offering, to barely $20.04 yesterday at the close of the bell. It was noted that this amounts to a "$50 billion loss" in shareholder value, market capitalization. The bigger question is what it portends, but first one must come to terms with the underlying reasons for the collapse which are generally only briefly mentioned, and if one isn't paying attention he could miss it.
A big reason, maybe the biggest, is inability to translate the ubiquitous availability of Facebook into a steady, predictable income stream- a consistent monetization if you will. Massively figuring into this is the fact that currently nearly 50% of users access it via mobile phone or blackberry. These media while convenient for users do not lend themselves for getting the users' eyeballs on assorted Facebook ads. For that matter, even desk top users are not really so inclined, or to use the words of one financial maven: "The only reason a person would click on an ad is if he's drunk".
The second reason is less known, or less widely known and has to do with 1 million new users added in the past year but most of whom are old (e.g. age 60+) "farts". In other words, the original youngish users' grandpas and grandmas only now feeling confident enough to risk being "friended" (or the converse). We know, from past experience (and this is a sad commentary on the balkanization of American intergenerational culture) that once a new fad or whizzbang gizmo comes onstream, it is abandoned as "uncool" when the oldsters latch onto it. The mathematical function is a low degree negative exponential like N = exp (-0.1x) where N denotes total original users + newbies, and x denotes the old farts added.
As to what it portends, if we are to accept the premises in Thomas Frank's chapter 'I want my NYSE' in his book "One Market Under God", we can look forward to a certain Wall Street imperative soon being applied to Facebook, and hence to its users. Ordinarily, for a 'brick and mortar' company, massive layoffs would be called for - similar to what 'Chainsaw Al Dunlap' did with Sunbeam USA in the 90s. Once Chainsaw Al sliced those U.S. jobs and dispatched them to Mexico - with rates of pay at barely $1 /hr, the "Street" smiled and all was well. (At least until the "Street" got miffed again and Chainsaw had to dispense with the Mexican operations as well.)
But since Facebook and its computer gurus is already labor efficient this will be as likely to occur as all the Republicans being beamed aboard an alien mother ship before the November elections.
More than likely then, Wall Street's honchos will insist Facebook forcibly monetize large parts of its user platform and interface ...if it wants to stay on the big boards, and not suffer demotion. Recall in the late 90s a number of companies were tossed directly off the DOW for not following through on directives to enhance shareholder value. Green eyeshade types at the time praised the turnover and the fact that "30% of the DOW changed hands on just one day". Is this a good thing? We don't know - but it does make one question the validity of the DOW's (statistical) behavior over time periods extending from before the change took place.
So this is maybe a heads up to Facebook users, that if you want to keep on keeping on with your social connections; you may have to pay a small price, or fee. Or more likely a specific monthly fee for some special aspect of the Facebook user interface used or accessed X number of times (Like the NY Times and a number of other sites now do). Once that happens, the Big Boys on Maul Street may finally smile on Mark Zuckerberg and pals, and say - 'Hey, you can stay on....since your share values are now rising! Keep that P/E ratio soaring".
But we shall see!
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