Facebook (Nasdaq: FB)
jumped to over $34 last week, marking the first time since its
IPO that the stock has traded that high. This came after a
one-day climb of nearly 30%.
A great one-day move, right? But let's put it in perspective:
Since its May 2012 IPO, FB is still down more than 3%.
The social network blew through both earnings and revenue
expectations. Second-quarter earnings per share came in at 19
cents, compared with the consensus forecast of 14 cents and the
12 cents a share posted during the second quarter last year.
In reality, all of Facebook's numbers were up big-time: Total
monthly active users were up to 1.15 billion, up 20% year over
year; mobile monthly active users were up to 819 million, up 51%;
and daily active users were up to 699 million, up 27%.
The real gem? Mobile ad revenue came in at $656 million, up 76%
from the previous quarter. Mobile ad revenue now makes up 40% of
total ad revenue, compared with 30% of total ad revenue during
the previous quarter.
Many investors believe that Facebook has finally hit the turning
point and figured out how to monetize mobile. However, the
question is, what's next? The company appears to have a lot of
growth priced in, trading at a trailing price-to-earnings (P/E)
ratio of 174, a price-to-sales ratio of nearly 15, and an
enterprise value-to-EBITDA (earnings before interest, taxes,
depreciation and amortization) multiple of 27.
Even with this expected growth priced in, the company has an
opportunity for serious upside. It's simple, really.
Replace Mark Zuckerberg as CEO.
||Is Mark Zuckerberg holding back Facebook's growth?
There's a serious problem with keeping the founder as CEO once
the company goes public. Running a public company is very
different than running a startup. There are different challenges
and goals, as well as the challenges of a shareholder mentality.
As a startup, you're accountable to yourself and venture
capitalists -- but as a public company, your shareholders look
Unlike venture capitalists, who are more interested in product
building and revenue growth, shareholders in a public company are
much more interested in earnings. Many startups are accustomed to
burning cash at rapid rates and losing money on an earnings
basis. A new Facebook CEO with public company experience could be
just what shareholders need to really launch the stock.
While there are founder CEOs who have gone on to have great
careers, the trend of late is that publicly traded companies have
performed better under a CEO with previous management experience
at other public companies.
Reversal Of Fortunes
Groupon (Nasdaq: GRPN)
is an example of a company that has flourished after the ouster
of a founder lacking in management experience. When Andrew Mason
-- who worked as a Web developer before founding Groupon -- was
fired as CEO on Feb. 28, the online coupon company was down 80%
from its initial public offering. Since his departure, Groupon is
up 45%, compared with a 13% gain in the Nasdaq.
Similarly, the mobile gaming company
Zynga (Nasdaq: ZNGA)
ousted its founder CEO, Mark Pincus, on July 1. Prior to Zynga,
Pincus had no management experience at a public company, though
he had worked in venture capital and as a financial analyst. From
its December 2011 IPO to Pincus' exit, ZNGA was down more than
40%. Since Don Mattrick -- a former president of Microsofy's
Interactive Entertainment Business -- took the helm at Zynga,
however, the stock is up just over 5%, in line with the Nasdaq's
advance in the same period.
Steady As She Goes
For an example of a maturing company continuing on a growth path
under its founder, consider the online review site
Yelp (Nasdaq: YELP)
, which has kept founder CEO Jeremy Stoppelman at the reins.
Stoppelman left e-payment firm PayPal, where he was vice
president of engineering, to go to Harvard Business School, where
he teamed with other PayPal executives to create Yelp. Since its
March 2012 IPO, Yelp is up more than 60%, compared with a 20%
gain for the Nasdaq.
Another PayPal alum, Reid Hoffman, left an executive vice
president position to start
LinkedIn (Nasdaq: LNKD).
Since LinkedIn's May 2011 IPO, LinkedIn is up more than 110%,
more than quadruple the Nasdaq's 26% gain.
Kayak Software is the travel booking website that was recently
snatched up by
Priceline (Nasdaq: PCLN)
for $40 a share. Before founding Kayak, CEO Steve Hafner helped
found Kayak's rival travel site, Orbitz, where he was in charge
of marketing and business development. Kayak's buyout is a 20%
premium to its initial trading price after its July 2012 IPO --
and a 50% premium from the stock's all-time low in August 2012.
Noting that Facebook could move higher with a new CEO is not to
say that the social network doesn't have some great executives.
Chief Technology Officer Mike Schroepfer served as CTO of Sun
Microsystems' data automation unit and Mozilla's vice president
of engineering. Chief Operating Officer Sheryl Sandberg was
previously Google's vice president of global online sales and
operations and served as chief of staff to former Treasury
Secretary Larry Summers.
What are the chances of a Zuckerberg ouster? Not good. Zuckerberg
has almost complete control of the company, commanding more than
half of the voting shares and serving as both chairman and CEO.
With Zuckerberg holding the majority of the voting power,
Facebook is a "controlled company," meaning it does not have to
have the majority of its directors be independent. With all that
said, why would Zuckerberg ever fire himself? Chances are, of
course, that he won't. The stock would have to take a great deal
of punishment from shareholders to convince Zuckerberg that it's
time to go.
Action to take -->
Avoid Facebook after its recent run-up. Zuckerberg isn't going
away anytime soon, and one great quarter doesn't necessarily
signal a true turning point at Facebook.