By BRETT ARENDS
Hold the Facebookenfreude.
There has been a lot of laughter and derision -- plus some investor anger -- since Mark Zuckerberg's company was dropped on the stock market's foot a few months ago. Facebook (FB)
But it's easy to overstate the problems. Investors dismissing Facebook today may be making just as superficial a judgment as those who rushed to jump into the IPO last spring.
After all, for all its troubles, the company is expected to pass 1 billion monthly users any day now. Facebook has only existed in its modern form for about six years.
One thing we forget: Google went through something similar -- if not as bad -- when it went public in 2004. The company mishandled its IPO and got in trouble with regulators to boot over communications at the time. The company had to slash its IPO price and the number of shares sold, late in the day.
Google had hoped to go public at up to $135 a share. In the end, the stock was sold at $85. "At $108 to $135 a share, it was too expensive," a fund manager told Reuters at the time. Yahoo took advantage of the IPO to dump some of its investment in Google and looked clever for a few weeks.
Oops. Six months later, the stock was at $200, and it never looked back. Today, Google, at almost $700 a share, could buy Yahoo out of petty cash.
The Internet is all or nothing. Nassim "Black Swan" Taleb calls it Extremistan. If you're an online company, you're a hero or a zero. There are few prizes for second place.
I live in a neighborhood with dozens of restaurants. They all make a living. Some are better than others, and their owners usually make a better living. But everyone competent stays in business. If they operated on Internet rules, it would be very different. One restaurant would quickly take over. There would only be one eatery left, and everyone would have to go there or go hungry.
Facebook's dominance of "social network" is extraordinary. Everyone has to go on Facebook because that's where everyone else is. It's like the QWERTY keyboard layout. Once it's entrenched, it's hard to displace.
Facebook, with its soon-to-be a billion users, is the second most popular website in the U.S., after Google, according to data from Nielsen. Yet the level of interaction is on a different scale. The average Google user spends about an hour and forty minutes a month on the site, says Nielsen. The average Facebook user? Try almost seven hours a month.
At $19 a share, Facebook is valued at $41 billion. However, it has about $10 billion in net cash. Admittedly, it is now planning to blow some of that on a new vanity headquarters in California. But that should still leave plenty left over.
An enterprise (cash- and debt-free) value of $31 billion is the equivalent of $31 per user. That doesn't seem like a lot, given that the average Facebook user spends about 80 hours on the site a year. Currently, the site generates revenue of just over $5 a year per user. It is not hard to see how that could rise. (The company may, for instance, be currently underpricing its advertising. I recently met a real estate agent who told me she had been able to place some targeted ads extremely cheaply).
It is very hard to see how Facebook will end up getting displaced. (Unless the management totally blows it. That can happen, of course: Look at MySpace, once owned by News Corp., SmartMoney.com's parent company.) When you get the attention of a billion people for seven hours a month, sooner or later you should be able to make some money from it.
I write this as someone who is no fan of Facebook.
Few companies have done as much to change our culture, and as quickly, as Mark Zuckerberg's. And I don't mean that in a good way.
Where once people might read newspapers and books, now they spend hours posting photographs of their dogs, playing idiotic games like Farmville, and sharing one-sentence comments about Jersey Shore."South Park," in its episode "You Have 0 Friends," nailed it.
I view these developments with gloom. I think these technologies are both destructive and addictive -- a lethal combination.
In the modern world "change" is considered synonymous with "progress." It's heresy to suggest otherwise -- let alone to argue that our world may now be rolling backward into the abyss. Thirty years ago, Neil Postman, in the book "Amusing Ourselves to Death," argued that the television was eroding the intellectual basis of our civilization. A few years ago, Nicholas Carr made a similar argument about the burgeoning Internet. Facebook, and Twitter, are taking this to a new level.
So maybe we should all own stock in Facebook -- for about the same reason everyone in Ancient Rome should have owned stock in the Goths. After all, if your civilization is going down the tubes, you might as well get paid for it.
H.L. Mencken once wrote that nobody ever went broke underestimating the intelligence of the American public. I find it hard to believe Facebook investors will be the first.