Why ask professors what they think of the Facebook IPO when founder Mark Zuckerberg started the company in a college dorm room?
Matthew Jacobs is a rising junior at Lehigh University and vice president of the Investment Management Group. The student run organization invests real money in a combination of portfolios and interacts with the Wall Street community.
Jacobs gave his thoughts only minutes before Facebook opened at $38.
“My personal opinion is that it’s overvalued at $104.18 billion,” said Jacobs. “I believe that price is based upon Facebook being able to monetize their main platform better. That is a distinct possibility—they did it recently with Timelines. But here’s their additional challenge. They must also monetize their mobile platform. I think they’re going to have difficulty with that.”
Why is Facebook’s mobile platform so important?
“The usage of Facebook is shifting from desktop computers to smart phones,” Jacobs said. “The average user time is 375 minutes a month—an enormous amount of time. But now usage is trending more to a mobile platform that, in Facebook at least, is limited in functionality. It’s going to be a big challenge to generate revenue from that.”
What about Facebook’s revenue?
Facebook has a huge user base and that’s where the initial value is coming from. But they only generated $4 in revenue per user last year. In order to be successful, they have to generate more revenue per user. I am not confident in their ability to do that.”
Any other challenges to Facebook supremacy?
“Management seems a little volatile to say the least. Mark Zuckerberg is clearly a genius but whether he can manage a public company has yet to be seen. His recent purchase of Instagram definitely calls that ability into question. It was valued at only $30 million in February 2011. It’s estimated value peaked at $500 million at the time of purchase. But the company has never generated a single dollar of revenue and he purchased it for a billion.
“Yes, it’s a good acquisition. It will help them monetize their mobile platform. But the real issue is that Zuckerberg did the deal on his own. That’s a huge decision to make without input. As part of that management team I would feel undervalued to say the least.”
Would you buy Facebook stock today?
“I would love to get in on that opening day trade,” said Jacobs. “But beyond that, I don’t really see it as a long term investment for my risk threshold. The valuation is just dependent on too many variables. There are too many challenges to change it from a social network into a business.”