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Nobody Likes Facebook, But a Rewind to 2004 Reveals That Nobody Liked Google Either

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Bloomberg is reporting weak demand for the Facebook IPO, which is reminiscent of 2004 when Google went public.

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MINYANVILLE ORIGINAL I'd like to think that Minyanville was way ahead of the crowd in identifying Facebook's (FB) growth challenges -- something that has major news outlet reporting weak demand for its IPO, but ignoring the circumstances surrounding a certain generation-defining Internet IPO from 2004.

Here's how we put it back in June 2011, which was a full seven months before the company filed its IPO offering document with the SEC: (See: Why a Facebook IPO Could Flop.)

Facebook is big -- very big -- and that means we need to start wondering just how much bigger it can get:

Now, I did some playing around with Facebook's advertising application myself to confirm numbers I'd been reading across the Web, and some things were obvious.

Relative to population, Facebook penetration is very high in developed countries like the US, UK, Canada, Spain, Italy, and France. This lends credence to the idea of slowing, or even potentially declining user counts in some of these markets. At some point, you just start running out of bodies.

We then went on to say:

Now it's entirely possible that Facebook could eventually grow to two or three billion users, capturing a big chunk of the five billion-plus people using mobile phones, PCs, and other devices.

The problem comes in that future growth in the user base will be coming from less-affluent areas of the world, which means less revenue-per-user.

After the filing actually hit in February (see: Facebook, Running Out of Bodies, Is in Need of Major Reacceleration in Monetization Rates) and was updated with first-quarter results in April (see: Facebook's Q1 Results Indicate Further Deterioration in Growth and Monetization Metrics), it became obvious that Facebook's monetization and growth metrics were looking pretty lackluster.

Here is a chart showing quarterly revenues and year-over-year revenue growth:



As you can see, revenue growth is falling due to a slowdown in growth in the user count...



...as well as a slowdown in growth in revenue per user:



As it turns out, a prime factor in the revenue growth slowdown is significant growth in mobile use of Facebook.

On Wednesday, in yet another update to its IPO filing, Facebook admitted that it doesn't "generate any meaningful revenue" in mobile.

Mobile Facebook is good for user engagement, but not so much for the bottom line.

And this brings us to the latest wrinkle in Facebook's IPO saga.

In a major exclusive, our good friends at Bloomberg reported yesterday that the deal "has so far generated lower-than-expected demand from institutional investors who are concerned about the company's growth prospects."

In fact, if Fudgie the Credit Whale hadn't cracked JPMorgan's (JPM) "Fortress Balance Sheet" to the tune of $2 billion yesterday, Facebook would be the story of the day on Wall Street.

Incidentally, Bloomberg took a poll of 1,253 subscribers to its Terminal service, asking if Facebook was overvalued at $96 billion, the top end of the proposed valuation range.

79% called it overvalued, while 7% said it was fairly valued. A mere 3% called it undervalued. 11% were undecided.

Now, that poll seemed unfair, given that it used the top end of the valuation range rather than the middle, but still -- the number indicate that at least from the institutional side, sentiment towards Facebook is awfully negative.

Only 3% calling it undervalued? Doesn't sound bubble-esque to me.

In fact, it reminds me of a certain IPO from 2004 that rhymes with boogle.

Google (GOOG) is a stock-market superstar today, but those with long memories will recall articles like this New York Times piece, which indicated a lack of enthusiasm for Google-mania ahead of its IPO. Among the detractors was a Silicon Valley legend -- Apple (AAPL) co-founder and current Fusion-IO (FIO) Chief Scientist Steve Wozniak.

Here's an excerpt from that piece:

The price range -- stunning even by Silicon Valley standards -- is based on the assumption of continued rapid growth by Google, whose revenue has soared from $439.5 million in 2002 to $1.46 billion last year and which had a profit of $105.6 million in 2003.

But Google's dazzling growth has lately shown signs of slowing. And the popularity of its search service has attracted a range of competitors, with others, including Microsoft, soon to follow.

Moreover, the market for new technology stocks, which had been showing signs of life this year after almost four bearish years, has soured in recent weeks, largely based on disappointing corporate forecasts for the rest of the year.

And what happened after that?

Google cut its IPO price down to $85 per share from a prior expected range of $108 to $135; that's a decrease of 30% at the midpoint.

And after that, this:



Yes, there were red flags, but overall, I'd say Google's done okay.

Conclusion

Generation-defining Internet company seeing major doubts regarding growth ahead of its IPO?

Yeah, it's happened before -- and that's why I'm warming up to the big fat deal that everyone hates.

Twitter: @MichaelComeau

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