Facebook is nine years old today. And for the first time, the social network is celebrating the anniversary of its Harvard dorm-room launch as a public company. So how has Wall Street changed Facebook’s vaunted “Hacker Way?”
There are signs short-term profit pressures have accentuated Facebook’s hacker instincts, its impulses to ship products quickly and to rapidly improve them, or kill them off, right out in the open. The pace at which Facebook delivers products has unmistakably quickened; the drumbeat of new Facebook apps, features, advertising initiatives, search engines, user dashboards, and stores has seemed particularly relentless since the company went public in May, as has the scrutiny under which the company operates.
Some acceleration in product delivery is normal for a company growing as quickly as Facebook, and CEO Mark Zuckerberg, according to analysts and company executives, is still trying to keep Wall Street at arm’s length as he promised he would in the company's IPO prospectus last year. But Facebook is also being more responsive to investors, and serving them well if you judge by the performance of its stock, which after sitting in the doghouse for six months has shot up 50 percent since early November.
“Senior management has shown they understand key investor concerns and have tried to address them,” says Arvind Bhatia, an analyst with brokerage firm Sterne Agee. “The main concern has been around FB's ability to monetize. Secondly, how it will transition to the mobile platform… (In those two areas) the team is more responsive.”
Facebook’s relationship with Wall Street is important because the company’s initial public offering was the most iconic of the current internet boom – and because Facebook has tried to defy the expectation that it put investors’ concerns, including short-term concerns, first. Facebook’s success as a public company will influence not only how many other startups of its ilk are able to go public, but how they choose to conduct themselves when they do so.
For all of Facebook’s responsiveness and accelerated product development, the company continues to tell investors at nearly every opportunity not to expect rapid growth, or for new products to turn into gold mines.
“I want to temper near-term expectations a little bit on revenue lines coming from other areas, like Gifts or Graph Search,” Zuckerberg said on a conference call with analysts last week. “These can be big opportunities for us long term, but for the foreseeable future the most important thing for us is to continue building out great consumer experiences around these products.” That echoed similar caveats at a product launch earlier this month and in a letter to investors just before Facebook went public .
In trying to defy Wall Street’s rules, Facebook is actually following in the footsteps of other tech companies. “Facebook is still very much focused on building out the user experience and monetization of the site, and they expect the stock will be rewarded over the long haul,” says analyst Colin Sebastian at wealth management firm RW Baird. “This is similar to the perspective of other large tech-focused Internet companies, such as Amazon and Google. You might note that one reason Google and Facebook do not provide quarterly financial guidance is to de-emphasize short-term performance, and keep investors focused on the longer term opportunities.”
Yes, Facebook maintains a long-term focus that has nothing to do with its stock price. But becoming a public company has also meant that, more than ever, Facebook is hashing things out in public, with the financial results of its experiments ultimately available for all to see, either in revenue growth or in the admission that a new product hasn’t produced any results material to investors.
Mobile revenue is a great example of how the spotlight has put pressure on the company to adjust its long-term priorities. Facebook took a detailed look at its mobile growth and strategy during the disclosure period ahead of its IPO last spring, and was forced to admit in a federal securities filing that mobile was a weak point for the company.
Zuckerberg later admitted that right around the time of these disclosures was when Facebook finally got serious about selling mobile ads. “This myth that Facebook can’t make money on mobile may have seemed true earlier this year because we hadn’t started trying yet,” he told analysts on a late October earnings call. “Today, after just six months of ramping up our mobile ads business, we’re already at a point where 14 percent of our ad revenue is from mobile. That’s about $150 million.”
That disclosure began a long comeback for Facebook’s stock price. Three months later, Zuckerberg was talking about how mobile had shot up to 23 percent of ad revenue. Wall Street’s frenzied obsession with mobile had been sated, and Facebook was a better company for it; in addition to rolling out new ad products like mobile sponsored stories, the company also completely overhauled its mobile app, making it richer and more responsive, and launched a series of standalone apps including one, Poke, reportedly overseen by Zuckerberg himself.
Of course, it’s quite possible that Wall Street will also turbocharge Facebook’s worst instincts, feeding an ambivalence to privacy that’s historically been a key part of the hacker ethic. For a company whose value lies in charting the most private relationships and interests of its users, it must be all too tempting to trade personal information for profits.
If it’s any consolation, one of Facebook’s most vociferous critics says the company is no worse in this regard than it has ever been.
“From our point of view there were not severe setbacks since the IPO,” says Max Schrems, a University of Vienna law student who has been trying to get Facebook punished for violating European privacy law. “Facebook was gradually making things less private before and after the IPO. The idea is to change things little by little so that people don't get scared away.”
Facebook might be wary of scaring users away, but these days it has to make sure investors aren't going anywhere, either.
