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Friday, May 18, 2012 - 14:30 - Kevin Garber @ke_ga

Facebook IPO Draws Near - Interview on ABC Radio Goldcoast

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I was interviewed by Bernadette Young regarding the upcoming IPO.  This is a follow up to the interview a little while back when Facebook first announcted the IPO.


Bernadette Young: If you are looking maybe online at different things around the place, you will see lots of stories at the moment about Facebook. You'll also see three letters IPO, and to talk more about it, I am joined by Kevin Garber who heads up Melon Media. Good afternoon Kevin.
Kevin Garber: Good afternoon Bernadette.
Bernadette: First of all, we should explain IPO to people just in case they're going, why is it I am seeing IPO everywhere to do with Facebook. Of course, it's the big floating really of this company.
Kevin: Initial Public Offer I think it stands for. The listing of the company onto a publicly traded stock exchange.
Bernadette: Now I mean is it such big news, do you think because it's Facebook and we're all on Facebook or so many people are on Facebook? Or is it legitimately there as a big story of this week?
Kevin: I think it's both. It is the third largest American IPO ever after Visa and I believe the other one just slips my mind at the moment, but it is the third largest US IPO. But I think the second aspect is yes, that it is a stock that we all actually use their product day in day out many times a day. Well most of us at least.
Bernadette: OK. Make a comparison because something like Google, that listed on the stock exchange, didn't it?
Kevin: Google listed on the stock exchange quite a few years ago and there has been a lot of criticism that Facebook is actually relatively expensive.
To give you some examples, Facebook at its listing price of which is anticipated to be about $35-$36 a share will be trading at 70 times projected profits whereas Google at the moment is trading at only 15 times projected profit i.e. a lot cheaper, and Apple is trading at 20 times projected profit at the moment.
So you can see there is a vast difference, and when Google listed all those years ago, it listed at 40 times projected profit, and Facebook is anticipated to be 70 times projected profit. So still very expensive. So Facebook is coming under quite a lot of criticism for being an expensive stock.
Bernadette: Still it sounds like there is a lot of interest in the stock. Australians will get a bit of a chance. Is that right?
Kevin: You will be able to buy Facebook stock in the secondary market that is once it lists. I will caution people however though because when you buy an American stock you are obviously buying it in US dollars, so you actually have dual exposure.
You are exposed to the risk of the share going up and down and you're exposed to the risk of the currency going up and down. So it's quite a tricky thing to manage, but that being said, it would be a fun stock to have in your portfolio.
Bernadette: [laughs] . Fun, yeah I love the way you say that, Kevin Garber. Of course, it would be fun. You love this stuff.
One of the interesting things of course about Facebook is that they make their money through advertising and a big advertiser has pulled the pin. Just today it has been announced. I think the Wall Street Journal might have broken that story a few hours back. What does that mean? It's General Motors. They say, I think they were spending maybe $10 million or something like that.
Kevin: This story must have really, really annoyed the Facebook people. The timing just couldn't have been worse.
Facebook doesn't make all of its revenue from advertising, the majority of its revenue from advertising. Yes, it is significant in that it points to a real weakness in its business model at the moment. The Facebook revenue is already starting to drop a little bit and people are concerned that it is plateauing.
Facebook however it is a very significant platform and it's sitting on an amazing set of rich data. Advertising might not be the way that it is going to win the big prize. There may be some other breakthrough model that they will come up with.
So is it significant? Well obviously in the short term it's very significant. In the medium to long term is it significant? Only time will be able to tell.
Bernadette: Yeah. I mean, I guess it's a question of they've come out and blatantly just said, "It just wasn't very effective advertising." What do you think about that? Is it an effective place to advertise?
Kevin: Well the click through rates on Facebook ads are incredibly low. That being said, they have a platform where you can calibrate the targeting very, very, very tightly. Might have been the wrong product. I am not sure what their ad offering was. Obviously there is multi-factors in all of this, but advertising is always tricky to get right.
Google is a lot more compelling and a lot more successful because when you're searching for something on Google, you are in search mode whereas on Facebook, it is more a passive type mode.
But there are ample opportunities for Facebook to monetize other elements of the Facebook experience, and I think they realize this, and they just have to work out how to unpack and how to find those points to monetize.
Bernadette: Yeah. I notice that General Motors have announced that they're still going to have their Facebook page though [laughs] .
Kevin: Of course that's free.
Bernadette: Yeah. That doesn't cost anything. That's the thing, isn't it? So take advantage of Facebook and the millions, billions of people that are on it, but don't put your advertising dollar into it anymore. Interesting times that will be everywhere of course until Friday. That's the big day, isn't it for Facebook?
Kevin: Friday American time. They still I believe have the option of changing their timing a little bit based on various criteria, but it seems like they have closed the book on the IPO shares, and it will be going ahead Friday US time, but there is still a chance it may be delayed.
Bernadette: Kevin Garber is the head of Melon Media. Good to talk to you as always, Kevin. Thank you.
Kevin: Appreciate it. Bye-bye.