Five Ways Facebook Is Not Like Google (And Why It Matters to IPO Buyers)
No 3 – Facebook IPO is valued much higher Google’s
Facebook. The pre-IPO valuation is around $100 billion. That is four times Google's valuation at the time it launched in 2004 — even though the revenue and earnings profiles at the time of the IPOs is very similar.
Google. In Silicon Valley, where people knew the troika running Google, few doubted its value, and its secret search algorithm was legendary. Google sold itself through an auction system that allowed anyone to buy at the IPO if they named the right price, which limited the ‘scarcity value’ that causes many stocks to jump to ridiculous, unsupportable heights when they start trading. Fallout from the 2000 dotcom bubble also kept a lid on its valuation, a mere $27 billion.
What it might mean for shareholders. Google IPO shareholders now own a company valued at about $200 billion. Its shareholders were getting a piece of a company that had just strapped a money machine to the search engine with AdWord. Revenue has surged year after year. “Facebook already has made a lot of money for people – but it’s not clear how much is left for the public shareholders,” said Sam Hamadeh, chief executive officer of Privco, a private equity research firm. He cited a downturn in revenue in the first quarter at Facebook as a possible sign of a dramatically slowing in the growth rate, which he said could spell trouble for IPO investors.
4. Social media is a tough sell for big advertisers.
Facebook. Advertising provides much of the revenue for Facebook, and its audience metrics could foster targeted advertising. But in the confines of its walled social community it needs to be sensitive to audience privacy and the needs of advertisers, a difficult balance. National advertisers have been slow to go beyond Facebook fan sites. GM said it will stop advertising on the social network.
Google. In advertising, a plain vanilla wrapper works best. The Don Drapers of the world don’t put author signatures on their creative work — it is all about the customer. Google’s clear generic wrapper does not conflict, and increasingly big advertisers are putting their ad spend into Google.
What it might mean for shareholders. Google is far ahead in building a human sales force that can guide and reassure the big advertisers who decide the vast majority of ad spending. “Facebook’s growth so far has come from its self-service advertising,” said Hamadeh. “But when it’s large advertisers spending $20 million and $50 million, they want to know where the ads are running. They want to pre-screen TV shows. The big spenders, Coca Cola, Procter and Gamble, they want control over where their ads run. That is a problem for Facebook.”