Is air leaking from the Facebook bubble?

Monitors show the $38 value of Facebook stock just before the close-of-trading bell in New York, May 18

So... what happened there? On Friday, after an all-night hackathon at Facebook's Menlo Park campus, Mark Zuckerberg pressed a button to mark the start of trading in his company's shares. Because that button had been "hacked" by some of his very smart engineers, his Facebook status was updated to "listed a company on Nasdaq".

Then after a hiatus as Nasdaq's systems struggled to cope - perhaps they need to hire some of those smart engineers - the share price began to soar from its already vertiginous $38 to $42. Then it began to sag, and by the time trading ended, it was just a fraction above the starting price, apparently only kept there by the efforts of the underwriters. Predictions of a first day "pop" had been confounded.

The expectation had been that small investors, intoxicated by the excitement surrounding the IPO, would rush to get in on the action, sending the value of Facebook to even more giddy heights.

Instead, it seems they were in a more sober mood, listening to people like the New York financial adviser we featured on the 10 O'Clock News on Thursday night. "We're telling our investors to hold off," Oliver Pursche told us. "We want to wait until we understand the business before we invest."

Now there's a message that tends to get obscured in bubble times - putting money into a company should involve a deep understanding of what it does now and where it is heading. And if you're investing in a business at a price roughly 100 times its current earnings, all the more reason to be confident that it has a plan which will multiply those earnings many times over.

Mark and Priscilla's wedding photo on Facebook News of the wedding was only shared after the event

And one more reason why small investors should be cautious.

On Saturday, Mark Zuckerberg updated his status to "married", as he wed Priscilla Chan in a surprise ceremony at his Palo Alto home. Nothing wrong with that - the couple have been together since their student days, and the pictures posted on Facebook of the shy groom - in a suit not a hoodie - and his bride were rather sweet.

But, hey Mark, why did you not do what you tell the rest of us to do, and share your plans with your Facebook friends a few months ago? If you'd made it an upcoming "event", then you and your fiancee would have seen plenty of useful adverts from cakemakers, dress designers, florists and all the other wedding businesses which now find the social network a great place to market their services.

Of course he wasn't going to do that - even if the "event" had only been visible to close Facebook friends, it would have been bound to leak out. But Mr Zuckerberg's whole philosophy - and the future revenues of his business - revolves around the idea of the "frictionless sharing" of every detail of our lives. And if more of us decide, like him, that there is a downside to letting it all hang out, then the advertising cash may grow more slowly than the $104bn valuation implies.

For other technology firms hoping to follow Facebook on the road to IPO riches, any sign that the bubble may burst is deeply worrying. Last week, the day before the IPO, a package was delivered to my office. It was a pinboard - yes, an old-fashioned cork board on which you stick notes. Pinned to it was a press release announcing that Japan's Rakuten had led a $100m investment round in Pinterest, the virtual pinboard social network. Pinterest is now valued at $1.5bn, though there is not much data around about its revenues.

So, an imaginative PR stunt - but perhaps more evidence of the investment bubble that Facebook has helped inflate. Now Pinterest, Spotify and other hot technology firms enjoying sky-high valuations will watch anxiously to see what happens to Facebook shares in the coming days.

For Mark Zuckerberg and his colleagues, there's not too much to worry about in the short-term - they've raised $16bn, whatever happens to the share price now. But perhaps we'll look back on May 2012 as the month when the air started to leak from a technology bubble.

Rory Cellan-Jones Article written by Rory Cellan-Jones Rory Cellan-Jones Technology correspondent

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  • rate this

    Comment number 152.

    140.John McCormick
    jobs the man who never invented or made one thing but he did ensure good designs had shoddy equipment put inside them and then fools brought them at 3 times their worth

  • rate this

    Comment number 151.

    If the only good thing to come out of Facebook is that people stop wearing suits to work because of Zuckerburg, then it's a success in my book!

  • rate this

    Comment number 150.

    Mr Zuckerberg wouldn't wear a suit for Wall Street and Public Investors, but conformed to a suit and tie for his secret wedding. As much as I think the whole disrupt the world, anti-establishment avenger attitude Mark promotes; it's a bit two faced/flip floppy.
    Just shows that he respects his wife, family and in-laws more than Wall Street, I can't fault him!

  • rate this

    Comment number 149.

    So Facebook is being propped up by banks and venture capitalist investors

    Enron anyone?

  • rate this

    Comment number 148.

    Rory, the subtle difference between you or I and Zuckerberg is that in the grand scheme of things we're mere nobodies - hence us putting our wedding details online would generate very little interest!

  • rate this

    Comment number 147.

    Facebook set the price artificially high knowing that people would still buy them because of the global publicity it gained. It doesnt take a genius to know that the basic business of facebook is not represented by its market cap.

  • rate this

    Comment number 146.

    What really baffles me is that nobody will lend the nation state of Greece a thin dime: the nation that invented western thought, democracy, medicine, ya da ya da: Greece will still be be there in a 1,000 years.

    But people are falling over themselves in their lemming like rush to invest in a web site created by a teenage hoodie that will be lucky to be there in 1,000 days....

  • rate this

    Comment number 145.

    Based on current projections, these shares are worth little more than 6-7 dollars, and that with a good bit of optimism on future revenue and profit growth.
    My condolences to anyone who paid full price for these shares or bought on the open market, use it as a learning experience.

  • rate this

    Comment number 144.

    At the end of hostilities in the Bosnian war there were many Albanian Ponzi schemes. Thousands were persuaded to "Invest" thousands I suspect some even belied the hype themselves. Convinced.

    The IMF got involved.

    And that is what is happening here.

    There are people with money.
    They are all looking for the main chance.
    Sad. Sad. Sad

  • rate this

    Comment number 143.

    Facebook has a very major trust issue. It's sharing its' data with a very paranoid American government. Expect Facebook shares to fall flat & stay that way. I hardly ever facebook America. Do you blame me? Facebook must wake up to decent people that are actually looking for friends & friendly organisations. The American government was never been seen as a friendly organisation.

  • rate this

    Comment number 142.

    Gasp! Shock! A company that does just about nothing is not worth the over inflated price it was originally valued at. Never will learn will we?

  • rate this

    Comment number 141.

    Under $10 a share by Christmas? Watch this space

  • rate this

    Comment number 140.

    One site to rule them all,
    One site to find them,
    One site to bring them all
    and in the darkness bind them.

    Am I the only person who can hear MZ laughing? (Mwahahahaha, pinky raised coyly to lips, cat with diamond collar, all the villainous bling).

    "Not so fasht Zuckerberg!"

    "Curses, how many times do I have to kill you, Mr. Jobs?!"

  • rate this

    Comment number 139.

    #135 Chris, I wouldn't be surprised if GS were doing just that;)

    #136 Windows 7.5 now allows users to merge separate social networking accounts (Twitter, Facebook, LinkedIn) into one, with a unified interface to read threads and post threads.

    They can also link contact details regardless of source. So you get an SMS message from a native messenger, as you would from a cell but from any source.

  • rate this

    Comment number 138.

    The worrying lesson is... when will we ever learn?

  • rate this

    Comment number 137.

    Facebook is a seductive monstrosity and like all monstrosities, when they fall they fall fast and hard, and I would not be surprised if in 1, 2 or maybe 3 years, it will fall and dissappear (thankfully).

  • rate this

    Comment number 136.

    contd from 134... Why the dislike of it as a non-user? Well, for me it's down to the number of organisations and individuals who insist on one having an FB account in order to interact with them, thereby attempting to treat it as just another means of communication, which it patently is not. (Flippin' 400 character limit.... grumble...)

  • rate this

    Comment number 135.

    Might be worth a short sell.

  • rate this

    Comment number 134.

    @133 The difference between email, phone and FB as means of communication couldn't be more stark. I can happily phone or email those I wish to contact without suddenly attracting the downright nosey interest of endless people from my past. As a relatively private person myself, having tried FB briefly, I can safely say it's far from just another means of communication!

  • rate this

    Comment number 133.

    Some of these comments are full of hate and rage towards FB - it's just another communication tool. Did you hate email and the telephone when they came along too, convinced they would never replace 'pen and ink'?... Do you think motor cars should have never replaced the humble horse and cart? ;-)

    Don't think it's worth billions, but stock markets never operated on real-life 'worth' anyway...


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