Posts Tagged ‘Technology’

Facebook IPO: Should we “Like” it?

February 5, 2012

Yes, I know, investor relations people should be thrilled to see life returning to the IPO market in 2012 – and here comes Facebook, the biggest Internet IPO of all, to stir up interest in public markets. But I’m wavering on whether to click “Like” or “Not-so-much.”

I can’t help feeling that all the hoopla around the social media giant’s pending public-company status may be a sign of a frothy top in the stock market. I hope not – and I do wish Facebook success in its IPO. It’s a wonderful growth story.

The stock market has had a good run recently, despite some nervous days. The S&P 500 is up 110% since about this time in 2009. The Nasdaq Composite has reached a level it hasn’t seen since 2000, not the top of the dot-com bubble but the time when prices were still deflating. And the market may keep rising for now.

Two things bother me a bit about the Facebook IPO:

Valuation. The prices being bantered about seem a little unhinged from reality. Andrew Bary’s commentary this weekend in Barron’s is interesting:

The best businesses can be poor investments, if you pay the wrong price. That’s worth considering as Facebook readies the most closely watched initial public offering in years—a deal that could value the seven-year-old company at $100 billion. …

Assume Facebook comes public at around $40, a slight premium to its private-market price. That would value the company at $92 billion, based on 2.3 billion shares outstanding. At $40, Facebook would trade for 93 times trailing earnings and 25 times 2011 revenue of $3.7 billion. … If Facebook’s profit doubles in 2012, topping the 65% gain in 2011, it would earn 86 cents and trade for nearly 50 times earnings.

The FB offering brings back “eyeballs” as a major performance metric – in this case, Facebook’s 845 million users and the assumption that there simply must be ways to make lots and lots of money off of all those eyeballs.

Exuberance. That gee-whiz enthusiasm, built on a rising market and a technology so popular grandmas are using it to follow the kids’ activities online, is just a little scary. The New York Times‘ Jeff Sommer commented this weekend:

THE financial system may not be in great shape, but why dwell on it? Stocks are rising and I.P.O. euphoria is in the air. … Greed in the market is rising, and for some seasoned investors, there is an uneasy sense they’ve read this script before.

“It’s like we’re finally emerging from nuclear winter for I.P.O.’s but we’ve forgotten our history,” said Harold Bradley, chief investment officer for the Kauffman Foundation and a former executive with the American Century mutual funds. “If we don’t start paying attention, we’ll be making the same stupid mistakes all over again.”

If the stock market teaches anything, it is to keep historical perspective, watch the broader context of the economy and markets, and not bet too much on an upward-sloping line you can draw through the past couple of years’ performance.

Good news for investors is that Facebook’s S-1 filing reports five years of rapidly rising revenues and three years of real earnings, also fast-growing. So this isn’t an “idea on a cocktail napkin” IPO from 1999. But neither is it J&J or Procter & Gamble.

If I were the IRO for Facebook, I would be emphasizing three messages to investors:

  1. Revenue and earnings. We have ’em, and here’s why they are sustainable. Investors should understand the varied revenue streams and their profitability. The IR story is about financial returns, not the social mission.
  2. Value for customers. Not the 845 million – users are essential but aren’t the ones who pay Facebook. The business is selling access to FB’s users to advertisers, application developers and the like. How much value does Facebook deliver to these customers – now and over the next few years?
  3. Durability. Investors must be concerned about what happens if Facebook’s “cool factor” wears off and users start taking photos and events and friends to newer, cooler platforms. Facebook needs to communicate its strategies for sustaining the dominant position in social media.

A friend tells me his worst investment decision ever was Apple: He bought AAPL at $15 a share and sold when it hit $35 – and he’s been kicking himself all the way up to $450. I must admit my investing instincts run in that same vein. Apple is a great example of “cool” staying cool – for consumers and shareholders. So Facebook may soar in its IPO – and continue to fly in the years to come.

What are your thoughts on the Facebook IPO?

© 2012 Johnson Strategic Communications Inc.

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From old media to social media

July 7, 2009

Entrepreneurs trying to raise capital – and get businesses up and running – are turning more and more to social media stars vs. traditional media to get the word out, The New York Times reports in “Spinning the Web: P.R. in Silicon Valley.”

The hottest PR people in Silicon Valley, says The Times, care less now about reporters at tech pubs or financial magazines than the influential voices online:

This is the new world of promoting start-ups in Silicon Valley, where the lines between journalists and everyone else are blurring and the number of followers a pundit has on Twitter is sometimes viewed as more important than old metrics like the circulation of a newspaper.

Gone are the days when snaring attention for start-ups in the Valley meant mentions in print and on television, or even spotlights on technology Web sites and blogs. Now P.R. gurus court influential voices on the social Web to endorse new companies, Web sites or gadgets — a transformation that analysts and practitioners say is likely to permanently change the role of P.R. in the business world, and particularly in Silicon Valley.

This, of course, is tech PR – the air has always been rarified around Silicon Valley startups, their founders and service providers. But the Times story has much to say about how information spreads in the rapidly changing world of social media.

One thing remains the same. Communicating begins with building relationships, so that when you have something to say, you’re talking to people who know you. I like the quote from Brooke Hammerling, one of those Silicon Valley publicists. Noting that Twitter is today’s fashionable way to get the news out, she says some newer platform may take its place: “It will morph, but it’s still all about relationships.”

(If you’re an investor relations person who doesn’t think IROs should even care about public relations, come back tomorrow for some compelling evidence.)

Communicating value … to an 800-pound gorilla

November 5, 2008

One upshot of the current environment, for some companies, is a change in the identity of our true audience. As an investor relations person, I’ve always thought of investors – individuals, portfolio managers, value, growth, whatever – as the audience.

But it’s not always so.

I was reminded of this by “Preparing for a Shrinking Economic World,” a column in the Nov. 1 issue of Genetic Engineering & Biotechnology News. Speaking of the biopharma business (as you might guess from the publication), the article notes that giant pharmaceutical companies are awash in cash – $9 billion on average among large caps – while the bear market limits the options of smaller companies:

Alas, there is one liquidity event that won’t be appearing any time soon: the biotech start-up going public. Since the first of several painful Wall Street events began, there have been several biotech companies that have withdrawn their plans to go public … This clearly leaves biotech in a state of vulnerability, as IPO hopefuls may seem further from exit. This also means that ready, willing, and able buyers from Big Pharma will perhaps make a strategic acquisition.

A piece in the Nov. 10 issue of Fortune, “Big Tech Goes Bargain Hunting,” makes exactly the same point about small to mid-size tech companies and the cash-rich giants of technology.

Truth is, this applies to many industries. I’ve heard entrepreneurs in a variety of businesses talking about exit strategies: Private companies no longer count on doing IPOs, but view their most likely exit as being acquired. In the public company world, too, smaller companies are thinking more about acquisition as a path to maximizing shareholder value.

So let’s talk about the 800-pound gorilla. Our audience may not be a mutual fund analyst in Boston or a little old lady in Kansas City. The real target audience (or at least one) may be a bigger company that, in a few months or years, may replace our many shareholders with a single 100% owner. And our public disclosures also influence these potential acquirers.

Are the messages the same, or different, for an M&A audience? As investor relations professionals, committed to maximizing shareholder value, we need to study up on this class of investors. They may be strategic acquirers in the same industry, or financial buyers like private equity funds. I don’t know all the answers, but we ought to re-read The Quest for Value and pay attention to news and trade articles explaining the motivations and structuring of acquisitions.

My impression from a few M&A experiences is that deal-oriented investors do have different information needs, or preferences. Earnings per share are out; the acquirer or i-banker will apply ratios to EBITDA or net income. Enterprise value, debt on the books and cash in the bank are intensely relevant. Assets that can be sold matter. Working capital and cash flow. In the biopharma field, and perhaps others, future products also drive value – again, often via multiples of projected cash flows.

I remember, years ago, writing an annual report for my employer – our last as a public firm – while top management was negotiating to sell the company. The deal was finalized in the same time frame as the annual report. It was gratifying when, a few weeks later, someone on staff with the new owners told me their top management had been especially impressed by the extensive new-drug pipeline graphic that had been a labor of love in this annual report. IR mattered.