We believe that a more open world is a better world because people with more information can make better decisions and have a greater impact. That goes for running our company as well.
According to Bloomberg, Barbara Jacobs, an assistant director for corporation finance at the SEC, pushed Facebook to disclose key financial challenges, like the decelerating revenue growth and user count, and dependence upon social gaming company Zynga (ZNGA) (See: Why Zynga's Mess Is Bad for Facebook).
In addition, the SEC team battled Facebook on claims regarding the effectiveness of ads and the calculation of the mobile user count.
Hmm, makes my opening quote seem a little ironic, don't you think?
Now since I have a big short position in Facebook, I smile every time the stock ticks down (See: Facebook Hits 1 Billion Users Mark. So Is That a Good Thing or a Bad Thing?).
However, none of this appears to be news -- though there is big-picture relevance, as I'll discuss below.
On February 2, Facebook delivered its first IPO filing, at which point anyone with a brain could see that business wasn't all it was cracked up to be (See: Facebook, Running Out of Bodies, Is in Need of Major Reacceleration in Monetization Rates).
The slowdown became even more obvious on April 23, when Facebook amended its S-1 to reflect Q1 results (See: Facebook's Q1 Results Indicate Further Deterioration in Growth and Monetization Metrics).
Here are two charts I presented on that date:
So the slowdown wasn't news.The Zynga issue was disclosed in the original S-1:
"Apps built by developers of social games, particularly Zynga, are currently responsible for substantially all of our revenue derived from Payments. If the Platform apps that currently generate revenue fail to grow or maintain their users and engagement, if Platform developers do not continue to introduce new apps that attract users and create engagement, if Platform developers reduce their advertising on Facebook, if we fail to maintain good relationships with Platform developers or attract new developers, or if Platform apps outside of social games do not gain popularity and generate significant revenue, our financial performance and ability to grow revenue could be adversely affected."
The mobile monetization problem was also disclosed with the original S-1:
"We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven."
It was also expanded upon with the amended filing on May 9:
"In March 2012, we began to include sponsored stories in users’ mobile News Feeds. However, we do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. We believe this increased usage of Facebook on mobile devices has contributed to the recent trend of our daily active users (DAUs) increasing more rapidly than the increase in the number of ads delivered."
So let's get real.
By the time the May 18 IPO date rolled around, there was more than enough information to know that this deal smelled all wrong.
However, the bigger takeaway may be the cultural change happening at Facebook. The so-called 'Hacker Way' seems to have been pushed aside for good old-fashioned public company games.
Let's circle back to the S-1, where Mark Zuckerberg discussed the company's mission:
"As I said above, Facebook was not originally founded to be a company. We’ve always cared primarily about our social mission, the services we’re building and the people who use them. This is a different approach for a public company to take, so I want to explain why I think it works."
I find that statement hard to reconcile with the likelihood that Facebook started aggressively stuffing ads onto mobile news feeds to juice up third-quarter revenues, and that it tried its best to keep risks under wraps ahead of the IPO. Sounds like typical public company stuff to me!
The gist is that Facebook's strategy may be driven by an external force -- shareholders' need for a short-term fix -- rather than 'The Hacker Way,', which is all about continuous product improvement and willingness to disrupt the status quo.
Could this new paradigm of the tail wagging the dog ever have happened in Facebook's pre-IPO utopia?
I don't think so.
Ideally, Facebook would give Wall Street the middle finger and behave more like Amazon (AMZN) and Google (GOOG), which at times have taken lumps for sacrificing near-term earnings to invest for the long-term.
But it's not. Facebook is starting to look like just another company trying to hit the numbers.
I guess this isn't the worst thing in the world.
Shareholders gotta eat too, and at this point, they've gotta be starving.
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