So after three days of trading, Facebook shares have lost 26% in value.
I like to think they'll bounce back for the sake of pending tech IPOs everywhere, but I just don't understand the hype.
Fundamentally my skepticism boils down to the fact that at the end of 2011 they reported post tax profits of $1b on revenues of $3.7b, which is a lot, however they had 845m users, giving a per-user profit of $1.18 from $4.38.
A little over a dollar per user, per year. Yet, when their IPO launched they were valued more than Amazon. Think about that for a moment - if you are anything like me you do a lot of shopping on Amazon. Sure, they don't have 901m users at the time of writing but I'd be amazed if they weren't making a substantial amount more than $1 per year out of each of us.
Since they admit that they generate a substantial majority of their revenue from advertising, Facebook's challenge is going to be making the site more attractive to advertisers in order to raise that per user per year amount. This will inevitably come at the expense of the user experience - either more adverts, "promoted" stories or those creepy targeted ads. Too much and the users will jump ship for whatever hot thing comes sailing along next which must be a massive concern for Facebook as their profitability is intrinsically linked to their having an incredibly large user base.
Considering all this, seeing the initial investor rush reminded me a little of the 'Is something brilliant happening?' bit of the final episode of Nathan Barley.