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The Bell Tolls

Half the company it used to be

Figure 1-1. Facebook’s closing stock price following its 2012 IPO
(May 18–September 4)

On September 4, 2012, 109 days after standing up in front of an expectant world as the second largest stock market initial public offering (IPO) in US history, Facebook’s stock closed at $17.73, 53%—and more than $50 billion in value—below its hopeful origin as not just a public company but as a referendum on social media. (See Figure 1-1.)

A referendum on Mark Zuckerberg—the wunderkind who had been fictionally immortalized in an Oscar-winning Aaron Sorkin screenplay—for whom “a million wasn’t cool.”

A referendum on Zuckerberg’s vital business partner, Sheryl Sandberg, and her sparkling record in government and business and passion for equality that had not yet expressed itself in a best-selling book but was on display at TED conferences.

A referendum, it seemed, on the very concept of the new Silicon Valley, which was no longer about either Silicon or its valley as networks of shuttles whisked the young software developers who had inherited this part of the earth to and from their preferred San Francisco playground.

There was no saving grace. No apparent way to talk yourself out of the surrounding facts: the overall economy was recovering, and highly regarded technology companies like Google and Apple—hell, even the NASDAQ—were up 10% in the same time frame.

No. Facebook stood starkly alone in its decline, and $17.73 didn’t look like the bottom. BMO Capital was setting their future price estimate at $15, implying Facebook was well on its way to eroding its IPO valuation by a soul-crushing three-quarters. Influential analyst eMarketer announced lower than expected revenue projections for the year. And only a month hence, October 2012 would bring the ending of the post-IPO lockup of 1.2 billion shares of Facebook’s stock, introducing a frighteningly large amount of new supply to overwhelm the already flagging demand for the stock.

Facebook’s new narrative hued more closely to the dismissed carcasses of once high-flying technology darlings like Groupon, Zynga, and MySpace.

“Facebook was not originally created to be a company,” proclaimed its own materials shared with partners to aid them in understanding the company’s unique culture. Maybe, the pundits gathering in droves around the declining company suggested, not-a-company is how it would end.

No Moves Left?

One of the biggest reasons the 53% slide felt much worse than merely a halfway point was that at the time only three consumer technology companies had come back from a decline of that scale to thrive and grow beyond their former glory. They are technology royalty: Apple, Google and Amazon. With hall-of-fame CEOs: Steve Jobs, Larry Page, and Jeff Bezos. As of September 4, 2012, however, the vast majority of observers judging Zuckerberg felt—to paraphrase Lloyd Bentsen’s infamous debate retort—that he was no Steve Jobs. No Larry Page. No Jeff Bezos.

In public, everyone will gladly caution you not to confuse stock price with intrinsic business value. But behind closed doors, these stock downturns usually brought with them vicious cycles of negative external perception and declining internal morale and productivity. They usually made convenient excuses for new and prospective customers to pull back. Usually made recruiting great talent—especially in the obscenely competitive market that is Silicon Valley—much more difficult. And usually disrupted internal flow while management teams scrambled for answers.

Worse yet, leading up to the IPO, Facebook’s leadership—Zuckerberg, Sandberg and others like respected chief financial officer David Ebersmann—had seemingly done everything right. Nine hundred million monthly users. A profitable business. Oversubscribed IPO roadshow. Largest IPO market valuation in the United States.

From the outside, it now appeared, they were out of moves. From the outside, this looked like the end. Or—much worse in the mind of an innovator like Zuckerberg—a long decline to irrelevance similar to the likes of HP and Yahoo. And for 109 days, he had not appeared in public to counter those perceptions.

This is the story of how Facebook got to that point, its amazing recovery and what lies ahead:

Chapter 2 shows how everything at Facebook starts with Mark Zuckerberg.

Chapters 3–12 are the 10 lessons in Facebook’s rise from also-ran to the recovery from the troubled IPO to becoming the reigning juggernaut of the most important shift in consumer media in six decades: the unprecedented rise of mobile screens.

Chapters 13–16 look at the big moves Facebook intends to make in the future and what happens if Facebook wins in all its ambitions.

And Chapters 17–18 dissect how failure is a part of Facebook’s success but that even Facebook may eventually get disrupted.