The Facebook IPO: Good or Bad for Business?

By Drew Hendricks posted May 19, 2012, 8:53 pm | 0

The most popular ad-supported website in the world is about to become available to own for anyone — but why on earth would anyone want it?

When Facebook’s stocks become available for public purchase this Friday in the largest IPO in American stock history, there will be quite a few things set in place that may make the purchase more or less worth it for the average stock buyer.

The immediate effects of buying stock in Facebook look very appealing: every stock is estimated to be worth roughly $35 apiece, and for the true social media aficionado, online networking will no doubt be somehow reshaped by the profits of the stock sales, an estimated 13 to 100 billion dollars, connecting all sorts of smaller social media hubs to the Facebook conglomerate and making it even easier to share content between sites with family and friends from all over the web.

We all know that the majority (some 85%) of Facebook’s revenue comes from the ads that target users of specific interests with a goal of simply being clicked. When you factor in the fact that one seventh of our online time is spent meandering around Facebook alone, social media advertising doesn’t seem like a totally farfetched income source. In the Age of Facebook, it seems an entire economy has been built off social media ads, and the pay-per-click advertisements will likely continue to bring in cash for the site and its shareholders.

Still, is is really wise to be the one to own stock in Facebook?

Skeptics’ concerns for Facebook surround the fact that Facebook will have to reinvent itself in order to keep the world wrapped around its finger: if more people become bored with the same-old same-old accessibility of the site, the ads that support it will be limp and useless to stockholders. Additionally, with most of the internet-accessed world listed on a Facebook profile of their own, there is a very limited window for the website to grow into a significantly larger community upon whom to advertise, especially with services that allow you to buy Facebook fans and market your Facebook page. Experts say that the site is entering a plateau era unless or until it gets creative with its accessibility or function: the media monster’s next big move will likely have to be an expansion to other electronic platforms, something it has struggled to perfect in the past. A hiatus of Facebook’s expansive progress may result in the same amount of users, with many frequenting the site less, in which case Facebook ad sales would decline.

Going by the potential of similar-type websites, the potential value of a stock in social media can be overestimated but quickly deflated. In the case of LinkedIn, stocks rose about a third in value before sinking back to the same value.