Facebook's initial public offering (IPO), which will be launched later on Friday, has stirred up much investor interest in Asia with many enquiring ways to procure the stock. However, question marks regarding the company's ad revenue business model may prove a dampener on its long-term financial viability.
Matthew Lewis, head of trading at CMC Markets Singapore, told ZDNet Asia in a phone interview Thursday that in terms of interest in impending stock listings, Facebook had created the "most excitement" he had ever seen among his Singapore investors. Some questions the company had to field in the leadup to the IPO included queries about whether his firm would be handling opening day trades, when the window for trade would close, and when the secondary market would open trading, Lewis revealed.
"Investors are looking at Facebook as a feel-good story in the industry at the moment," he said, explaining the heightened interest.
Asked if this excitement was confined within mature, tech-savvy markets in Asia such as Singapore, Lewis said it was "not uncommon to see the same excitement" among CMC Markets' other regional offices. Besides Singapore, the company has outposts in Australia, China and Japan to cover the Asia-Pacific market.
The company announced Friday that more than 421 million shares, priced at US$38 per share, will be made available at IPO. Trading begins on Nasdaq today and is expected to close on May 22, 2012, subject to customary closing conditions. This means the company will raise US$16 billion and puts its estimated value at between US$104 billion and US$107 billion, making it the biggest Internet IPO ever, according to reports.
Facebook initially projected a US$5 billion IPO filing according to its preliminary prospectus, but high demand for its stock meant, to date, it had made eight amendments to its filing papers with the United States Securities and Exchange Commission (SEC).
Long-term viability in doubt
Despite the ongoing market excitement, Lewis noted Facebook's public listing was a case of "excitement blocking out the fundamentals". He said for most investors looking for value, they would "steer clear" from buying into the social networking giant.
This was because the company's advertising revenue model in terms of attracting companies onboard and effectively helping them to monetize their products remained in question, he noted. The trading chief pointed to the fact that Facebook's first-quarter earnings recorded the company's first ever quarter-on-quarter slide in advertising revenue, falling 7.5 percent.
Since ad revenue was the company's main contributor, this latest showing posed a clear question mark over its long-term prospects, he stated.
With regard to General Motors' (GM) pulling out of its advertising dollars--amounting to US$10 million--from the social media platform, according to a Wall Street Journal report Wednesday, Lewis said the automaker's decision should be seen from the perspective that its Facebook presence was mainly used for branding purposes and not for increasing sales.
After all, Facebook was not really the right platform from which consumers would purchase cars, he said. "Facebook is more of a place for compulsive buys of items such as Starbucks [coffee], and less so for a car," he added.
Strong "distrust" in Facebook
In a separate study by Greenlight Research, 30 percent of respondents polled "strongly distrust" Facebook with their personal data while 44 percent said they would "never" click on its sponsored ads. The global survey collected responses from 500 people--including students, law enforcement professionals, accountants and the unemployed--to assess how they would engage with online advertising, search engines and social networks.
The study noted that Facebook had spent the last 12 months developing its advertising program, moving from offering just branded advertising for fan acquisitions to become a "serious" direct acquisition channel.
"Many of the developments are appealing to retail brands, especially with retail being the most active in the space," said Hannah Kimuyu, director of paid media at Greenlight Research, in the statement. "Most recently, we have seen one high-street retailer achieve a 15 percent higher average basket value and 20 percent increase in conversion rates on Facebook when compared to its search activity."
Kimuyu added that while 44 percent said they would never click on sponsored ads on the online platform, it was "interesting" to see that those who did, found the targeting "effective and engaging". He said he expects to see more people clicking on such ads this year.