As much as I would like to trade Facebook, the company is right to stay away from turning public in many regards and I believe that it is making the right decision.
Facebook’s founder Zuckerberg official stance
“We aren’t planning to go public anytime soon. As a company, I think we look at going public differently than many other companies do. For a lot of companies, going public is the end goal and they shoot for and optimize around it. For us, going public isn’t a goal in itself; it’s just something we’ll do when it makes sense for us. Since we compensate people at Facebook with stock and we took investment, I view it as my responsibility to eventually make that stock liquid for people, but that doesn’t have to happen in the short term and our primary responsibility is still just to make sure Facebook develops to its full potential.”
Focus on growth instead of profits
If Google executives care at all about the stock price, it must be very frustrating to see the stock struggle so much despite the fact that it continues to display strong traffic and market share growth in segments such as Youtube and Android. Facebook has been able to largely escape questions about its profitability as it remains mostly closed to the scrutiny of financial analysts. Instead, Facebook has put its energy to improve its product and launch new services such as Facebook Places. Is Google focused on long term growth? Yes, I think it is. But it must be tempting to do shorter term moves to calm down anxious investors that are checking each quarterly statement in detail. That temptation is much smaller for Facebook as it deals with a smaller, more patient group of investors.
Any public company will tell you that the costs associated with producing all the required reports and dealing with all the procedures are very important. While Facebook must follow some regulations, the load required is less important and that has an impact on the bottom line. Could the company be more effective if it avoided turning public?
This is a major change compared to companies even 5 or 6 years ago. Private companies have now found ways to offer shares to many outside investors and the shares can be traded through “brokers” such as SecondMarket. While the shares are not on an exchange and available to most retail investors, they are trade able and that is the most
important. Why? Because some of the venture funds that may want to sell back some or all of their investment to cash in a significant investment.
Companies like Digital Sky have offered proof that the demand on this secondary market is important and any investor wanting to sell back its shares can do so at a fair price.
A new breed?
Is it possible that companies like Facebook and others in the future might delay going public for years and maybe even longer? I think that if secondary market brokers such as SecondMarkets can continue to grow and provide additional liquidity, the incentives for companies like Facebook to go public will be greatly diminished. I would be sad as an investor and certainly hope to see an IPO very soon (as I do for others like Twitter, LinkedIn and Demand Media) but it’s difficult for me to blame executives, they just don’t have that much to gain by going public.