Skip to main content

Facebook

Facebook announced last week that it was going to have an initial public offering of its stock.  Will Facebook stock be a good investment?  Some investors may be put off by the governance arrangements, whereby Mark Zuckerberg maintains a controlling interest of the corporation.  Zuckerberg will effectively have 56.9% of Facebook’s voting rights!  However, some studies have shown that public corporations which are managed by their founders perform much better than diffusely-owned corporations (click here for further details).  It is only when those founders hand over to their offspring that one needs to worry.  Given that Zuckerberg is only 27, it could be some time before his daughter / son takes over!

I have a more fundamental problem with Facebook as an investment.  Although one in seven minutes on the Internet is spent on Facebook, I fail to see how it can earn enough profits to justify its rumoured high flotation price.  Facebook may be a great way to keep in touch with friends and family, but can this social network be turned into high profits?  Maybe Zuckerberg is a modern-day alchemist who will somehow devise an algorithm that allows him to take all your personal details and use them to exploit you! 

P.S. I’m not on Facebook!  Below is an amusing skit about Facebook.


Popular posts from this blog

The Failure of Herstatt Bank

As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of

Boom and Bust: A Global History of Financial Bubbles

Boom and Bust: A Global History of Financial Bubbles, co-authored with my colleague Will Quinn , is forthcoming in August. It is published by Cambridge University Press and is available for pre-order at Amazon , Barnes and Noble , Waterstones and Cambridge University Press . 

The Great Depression

Marginal Revolution University has a great video on the Great Depression.