In the late 1990s, the craze for initial public offerings was hailed as the dawn of a new age. The Internet was replacing manufacturing. Who needed a factory floor when you could point and click?
Facebook’s Friday IPO, which opened with a staggering $104 billion valuation for the company, hasn’t transported us back to the bubble years of the 1990s. But, like that time, today’s Facebook frenzy is about what our society values. When Mark Zuckerberg rang the opening bell on Friday, his company’s $38 share price wasn’t rooted solely in the economics of the social networking giant. What the financial analysts are selling isn’t just the initial public offering of a company that Zuckerberg started in his dorm room at Harvard eight years ago. They are selling an image of the United States.
When public offerings break records, as Facebook did with most shares traded on the day of its IPO, they do so because the company mirrors how we see ourselves — and the image of the future we want to project.
Before the tech bubble and the “new economy,” IPOs were about manufacturing strength and proven American power. That’s what the public offerings from General Electric at the turn of the 20th century and Chrysler and General Motors in the 1920s showed.
When Ford finally went public in 1956, it broke records as the largest IPO. By the time Americans could line up to buy a piece of the company, it had been around for 50 years. The stock market was driven by companies with established products seeking to expand, a growth idea that has been uniquely American.
The notion that a product didn’t have to be well-established to attract starry-eyed investors began in the 1960s. A company called Syntex produced a birth control pill that was brought to market with much fanfare but a short track record. It went on to become the leader in its industry and helped change attitudes toward contraception.
Despite its solid revenue and subscriber base, Facebook shows that it is possible to raise capital with little more than a marketing idea and great expectations. But the $104 billion question is simple: What does the excitement about the company reflect about the nation?
In the 1990s, investors were persuaded to get on the Internet bandwagon. Analysts pushed it as a time of unprecedented opportunities: After all, how would you feel if you missed the railroad boom after the Civil War or the opportunity to invest in the country’s infrastructure at the end of the 19th century?
Within five years, many of those new companies, online retailers or middlemen designed to reduce business-to-business costs, had disappeared. The ones that remained struggled with the expectations previously heaped on them. Their IPO prices reflected new concepts in finance. Not price-to-earnings multiples, but fuzzy math based on notions such as projected sales in five years to expected earnings. Basically, how much would the market pay for expectations? In some cases, quite a lot.
The companies that survived have transformed the way we shop and search for information. This is a technology and industry mostly developed and nurtured in the United States; its continued success is the country’s success. Even the government recognizes this and aids indirectly in the process. Goods sold on Amazon.com, for example, are still free of state sales taxes in most places.
Occasionally, the old economy enters the picture. The IPO for the new General Motors two years ago was not a hot issue in the novel, new economy sense. But its success did reflect a national desire to put the old GM bankruptcy behind us and concentrate on the future. That is what the IPO market has always been about. Despite politics, everyone was rooting for GM to reemerge, still standing.
What do we expect from Facebook? Social networking is not in the same league as manufacturing, which, even in decline, employs many people and adds value to the supply chain and the nation’s general welfare. Yet its power is pervasive and persuasive. Almost 1 billion users can’t be disputed.
More than any IPO in recent memory, Facebook represents the expectations of a new generation, the generation of its 28-year-old founder. Social networking is an American phenomenon, founded on the belief that our individual experiences are worth broadcasting. The connectedness that Facebook preaches also allows advertisers to connect with hundreds of millions of people in a more targeted way. So personal growth and business opportunity are combined in a uniquely American style. The company, too, reflects an American ideal: that a kid with an idea and the ability to pull it off can one day be worth billions.
But not all quintessentially American IPO dreams come true. Securities analysts will continue to sell this and future ideas based on numbers, arguing that going forward into a Facebook world is the only direction in sight. Who ever made money by rejecting the railroads and opting for canal travel instead?
The true test of social-networking companies may be proven in a future crisis. Will the federal government be likely to prop up Facebook as it did GM and Chrysler or even AIG and the big banks? That’s not a question about market hype or expectations. Only the hard facts about a company’s worth to the economy. Is the nation’s future linked to Facebook’s success? Probably not, but the analogy will be made for some time to come.
For now, Facebook (whose board members include Washington Post Co. Chairman Donald E. Graham) is the deal of the moment. When the car companies Chrysler and GM went public in the 1920s, they symbolized the nation’s growing strength and freedom of movement. Syntex represented the early stages of the women’s movement and freedom of choice. Does social networking represent a new kind of freedom or is it a symptom of a fractured society that is desperately trying to remain in touch?
To answer that, we’ll need to see what Facebook’s own timeline looks like in a few years. And although the company has amassed almost 1 billion users with breathtaking speed, it can’t predict the future. At least not yet.
Charles R. Geisst is the author of “Wall Street: A History” and “Collateral Damaged: The Marketing of Consumer Debt to America.”
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