Ten years ago, Facebook told public markets that it was pouring money into smartphone apps because the use of mobile apps was key to the company’s growth, although at the time it “didn’t bring in any significant revenue at the moment”.

It was in the prospect of his Nasdaq debut, which took place ten years ago on Wednesday and led to the largest IPO ever for an American technology company. Facebook’s $ 100 billion market capitalization instantly made it one of the most valuable technology companies on the planet.

But within three months, the stock lost about half of its value as the market heeded Facebook’s warning. Due to the fact that consumers flocked to smartphones before the advent of the proven business model for advertising on small screens, investors were concerned that the days of Facebook’s hypergrowth were in the rearview mirror.

We know how it turned out.

Facebook is now more than 25 times more revenue-generating than in 2012. And by 2018, more than 90% of advertising sales accounted for mobile phones. At the peak of its market capitalization in 2021, Facebook was worth more than $ 1 trillion, mostly due to its core mobile app, as well as Instagram and WhatsApp, which it acquired.

Now the company has a new name, Meta. And of the six top executives since the IPO, only two remain: co-founder and CEO Mark Zuckerberg and chief operating officer Cheryl Sandberg.

However, for investors the dilemma looks quite similar. Technology is changing, and Zuckerberg is making another bet on where it is going. Facebook said in October that it would spend about $ 10 billion over the next year to develop technologies to create a metaworld, a world of virtual work and gaming that consumers will access through a headset.

As in 2012, there is no big existing business model and there is no certainty that Zuckerberg’s vision will go as he predicts.

“My concern about the metaworld is that investing is more like drilling oil wells – you can come empty-handed, you can get rich,” said Brian Yaktman, chief investment officer of YCG Investments, which oversees more than $ 1 billion. dollars of assets. “I’m just wondering how big it will be and who will be the winner.”

The hazy future of the metaverse is just one of the reasons why the company’s shares have fallen 47% since reaching their peak in September, which is currently the worst among the six most valuable US technology companies during this period. The number of users fell for the first time in the fourth quarter, and changes in Apple’s privacy are damaging Facebook’s ability to deliver targeted advertising.

There is also a reputational blow that the company has inflicted after informant and former employee Francis Haugen released internal documents showing that Facebook is aware of the damage its products do, especially to young users, while avoiding corrective action.

Yacktman still owns shares of Meta, but his firm has not increased its position for quite some time. He says the sell-off reflects the market’s view that the metaverse is a money hole and little more than Zuckerberg’s game. Meanwhile, Facebook remains the number one in digital advertising in the US, a market that the Insider Intelligence estimates will grow by almost 50% by 2025 to $ 300 billion.

“Right now, they have a machine that throws out money, and the market attributes zero value to the cash they burn for the metaverse,” Yaktman said. In other words, he said, the core advertising business is solid, and “you have a free option in the metaverse.”

IPO record

The last decade has been a wild ride for Facebook.

The company’s IPO in 2012 was historic. Facebook raised $ 16 billion, making it the third largest IPO in the U.S., second only to Visa in 2008 and General Motors in 2010. The largest in the technology industry to date was Agere Systems, which left Lucent Technologies in 2001 and raised about $ 4.1 billion.

By the time Facebook went public, it was already one of the dominant brands on the Internet with more than 500 million daily active users worldwide and $ 1 billion in quarterly revenue. Its valuation soared in the secondary market as many private equity funds, mutual fund companies and hedge funds raised the price, offering significant payments to employees and existing investors.

Morgan Stanley topped Facebook’s IPO in a coup against rival Wall Street Sachs Goldman, but the offer didn’t go as planned. The company raised the price range aimed at the offer, even as domestic concerns spread about Facebook’s prospects for the second quarter and full year. A group of shareholders sued Facebook and Morgan Stanley for withholding material information.

Nasdaq also suffered from what it called a “technical error” that delayed the opening of the Facebook trade and prevented some orders from being properly carried out. The stock ended its first day with little change and began to deepen from there, starting with a 19% drop over the next two days.

Shares of Facebook did not recover to an IPO level of $ 38 until August 2013, more than 14 months after the debut.

Kevin Landis, chief investment officer of Firsthand Capital Management, watched the drama from his office in San Jose, California, about 20 miles from Facebook’s headquarters in Menla Park.

He first bought Facebook shares in the private market in 2011, a purchase that he said “looked reasonable for about five minutes” until the shares collapsed after the IPO. He held these investments until about 2014, when the stock resumed and traded in the 70s.

Landis said that in another of his funds he started buying after the fall when stocks were in the 20s, and he raised that figure until it reached about $ 200 around the time the 2020 pandemic began.

“The analysis was simple: Facebook was going to be a powerful advertising platform,” Landis said, referring to his original thesis. The only comparative model was Google, and Facebook “could cost a significant portion of what Google cost,” he added.

However, Landis said he never had his own Facebook page because he hated the loss of privacy associated with sharing so much personal data.

“I broke one of my own rules – invest in what I thought was great, but don’t go into it to the elbows,” he said.

It was a good bet. By the end of 2013, mobile advertising accounted for 45% of Facebook advertising revenue, compared to 11% in 2012, proving once again that brands are watching. Between 2013 and 2018, Facebook’s revenue growth averaged about 50% per year.

The engine was so strong that even the seemingly disastrous news didn’t bother Facebook’s financial performance. Since the election of Donald Trump as president in 2016, Zuckerberg has repeatedly downplayed the role his website has played in allowing Russians to spread disinformation and interfere in elections. Then came the 2018 Cambridge Analytica scandal, when reports showed that the analyst campaign had improperly accessed the data of 87 million Facebook users and used it to help Trump target advertising for the 2016 election.

Finally, the Haugen saga late last year began with a series of reports in the Wall Street Journal and was accompanied by stories from many other publications detailing Facebook’s focus on growth, despite the negative effects of its products.

“Very mixed emotions”

Facebook’s behavior has led to numerous government investigations. Management was regularly summoned to testify before Congress, and in September several U.S. lawmakers accused the company of following Big Tobacco’s recommendations, “producing a product that they know is harmful to young people’s health,” according to Senator Ed. Brands, D-Mass.

Haugen’s documents coincided with the completion of an extended bull market rally for Facebook. But the technology sector as a whole was also nearing its peak and began to retreat in November, as concerns about inflation and rising interest rates drove high-rise stocks.

For Meta shareholders, the worst day in history came in February. Shares fell 26% after a weak earnings forecast and an expected hit of $ 10 billion from changes in particular that Apple has made to its mobile operating system to limit advertising targeting.

Far from a rapid expansion a few years ago, Facebook now faces potential revenue cuts in the second quarter, hit by inflationary pressures and the war in Ukraine, as well as the growing popularity of the TikTok video app, which captivates users and advertisers. dollars.

“There is nothing existential, they will not go bankrupt and they will not run out of money – it’s just not a very convincing story for the near future,” said David Golden, partner at technology investment company Revolution Ventures in San. Francis. He said that “Facebook’s influence on the market has significantly weakened with alternatives on social networks and alternatives on other channels.”

Zuckerberg, who has just turned 38 and retains control of his company and its board, says little these days about social media and mobile advertising. It’s all about the meta universe and Meta’s Reality Labs division, which lost nearly $ 3 billion in the first quarter with revenue of $ 695 million, mostly from VR headsets.

“It won’t be until these products really hit the market and scale significantly, and this market will end up being big, it will be big profits or profits for businesses,” Zuckerberg said during a call about the company’s profits in the past. months. . “It lays the groundwork for what I expect to be a very exciting 2030, if it’s like that – if it’s kind of more proven as a core computing platform.”

Landis, who has not owned shares for two years, says he is more intimidated than excited by Zuckerberg’s vision, and considers the virtual reality takeover “very anti-utopian.”

“I hope it doesn’t affect people’s lives, it just improves people’s lives,” Landis said.

Given how much Facebook knows about its users and what the public has learned in recent years about how the company processes data and privacy, Landis doesn’t trust Facebook that it does the right thing.

“It’s impossible to look at this campaign and not feel very mixed emotions from it,” he said.

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