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.