Zuckerberg's Reign Over the Facebook Kingdom
Facebook's S-1 revealed a number of interesting facts about the company's advertising business, its mobile risks, and its pile of cash. But perhaps most striking is CEO Mark Zuckerberg's stunning control over the company. He is sitting on a massive controlling stake — the largest by a landslide — and he's putting forth a distinctive, ambitious social mission that could alienate investors.
Zuckerberg controls 1.1 billion class B shares, which give him a nearly 57 percent stake in the company — he owns about half of them, the rest he exercises proxy voting authority over. He also holds 42.2 million Class A shares, giving him 36 percent stake of that group.
Zuck, as he's affectionately called around Facebook, IS the company. At just 27 years old, he controls its strategy and he can prevent its sale of takeover. Investors' evaluation of the company is largely an analysis of Zuckerberg's management potential. And he's making an argument that he's benevolent, even if he might have the power to be a dictator.
The CEO is sending a message with his commitment to ownership of the company — he hasn't taken any money off the table. His only sales are to cover the tax costs associated with exercising options. And he's not taking much of a salary — his payday in 2013 will just be $1, after receiving just $500,000 a year.
Of course his stake in the company will add up to big bucks. His 28 percent stake of Class B shares will likely be work between $21 billion and $28 billion, if the company's valuation is in the expected $75 billion to $100 billion range.
So what is his vision for Facebook? It has a lot less to do with business than it does with changing the world — which could be provocative to Wall Street. Zuckerberg wrote a long letter to potential investors in the company's S-1, detailing his commitment to connecting the world and his focus on building products, rather than purely profits. He writes: "Simply put: We don't build services to make money; we make money to build better services." (Click here to read the SEC filing.)
Zuckerberg also lays out how his approach could yield strong returns for shareholders. He believes that users will appreciate his vision, writing "I think more and more people want to use services from companies that believe in something beyond simply maximizing profits."
But intrinsically, Zuckerberg believes that connecting people will transform the marketing business, which will translate into profits: "We hope to improve how people connect to businesses in the economy... In addition to building better products, a more open world will also encourage businesses to engage with their customers directly and authentically."
Translated into capitalist-speak, that means Facebook is a conduit for brands to speak directly to customers who want to hear from them, which means much more effective, valuable marketing.
We'll see whether investors agree with Zuckerberg's high minded approach to his business, or whether Wall Street will lash back at this attack on its overt desire for profitability to be a priority.