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Facebook has 1 billion chairs, disgruntled investors get court-side seats
Posted By kurtnimmoadmin On October 5, 2012 @ 8:10 am In Featured Stories,Tile | Comments Disabled
October 5, 2012
Just one day after announcing they’d hit a new milestone in user registrations, Facebook has something else to celebrate: Judges have decided to allow the company to combine nearly 50 lawsuits brought by disgruntled investors into one class action suit, making it easier for Facebook to defend itself in court.
The investors involved in the suit are scattered across the country. While some fought to keep their cases confined to California courts, Federal judges on Thursday ordered that all cases will be transferred to U.S. District Judge Robert Sweet in Manhattan, New York.
On Wednesday, October 3, 2012, Facebook CEO Mark Zuckerberg announced that Facebook now has an active user base of one billion members. To celebrate this milestone, Zuckerberg posted a 90-second video spot on the Facebook homepage, which is visible to anyone whether they’re a registered Facebook user or not.
The video, created by Wieden & Kennedy of Portland and directed by Mexican film director Alejandro Gonzalez Inarritu, opens with a shot of one empty chair, which soon multiplies into enough empty chairs to fill a basketball arena. Along the way we see shots of telephones, doorbells, airplanes and bridges.
The message of the video is this: Anyone can sit down in a chair, and if the chair’s big enough they can sit down together. And if there are enough chairs, lots of people can sit down at the same time and connect.
“And that is why chairs are like Facebook. Doorbells, airplanes bridges, these are things people use to get together so they can open up and connect about ideas and music and other things that people share.”
While Facebook is celebrating the fact that they’ve reached one billion active users, investors are more than a little concerned about that basketball arena filled with empty chairs. After all, if there’s nobody sitting in those chairs, if the arena is nothing but a tumbleweed-strewn ghost town, who’s going to buy their popcorn, soft drinks and beer?
Within days of its $38 IPO last May, as stock values plummeted, investors were already hiring attorneys to file suit against Facebook, claiming that the company disclosed negative assessment information in advance to analysts for the big banks, leaving the average investor out in the cold.
A May 2012 article at CNN Money says, “The lawsuit states that “certain of the underwriter defendants” were given estimates for how Facebook would perform in the second quarter and for the full year.”
“The revisions were material information which was not shared with all Facebook investors, but rather, was selectively disclosed by defendants to certain preferred investors and omitted from the registration statement and/or prospectus,” the plaintiffs claim.”
Facebook says, “No, no, no! We did talk to Morgan Stanley, but we didn’t do anything wrong!” Facebook alleges in their filing that they were just following “customary practices and did not violate any rules.” Morgan Stanley CEO James Gorman told CNBC, “There was no nefarious activity. There wasn’t any desire to obfuscate or hide [information].”
Whether there was any “nefarious” activity, only time will tell, but the fact remains – Facebook isn’t pulling in the advertising revenue that investors thought it would and they’re not happy campers. In their rush to get in on the ground floor of the “next IBM or Microsoft” investors looked out over that arena filled with empty chairs and pictured it filled to capacity with season ticket holders.
Too many people, for whatever reason, have multiple Facebook accounts. And when you start comparing those multiple accounts to those empty chairs, it’s easy to see why investors are upset. In July 2012, three months after the IPO, Zuckerberg admitted that five to six percent of existing accounts were fake, a low-ball estimate that seemed to appease the grumbling masses, but not realistic by a long shot.
Surprisingly, though, since that announcement, nothing’s changed. Instead of subtracting out those 5.4 million accounts, the numbers just keep continuing to grow. Granted, when you’re talking about one billion users, 5.4 million is only a drop in the bucket.
But Facebook includes those 5.4 million empty chairs when they’re calculating ad rates, which are based on market size, competition and demographics. Advertisers only pay each time their ad is clicked, but, in general, the larger the target area the more that click costs. Removing 5.4 million people from a marketplace would typically lower advertising costs and give advertisers an increased return on their investment.
It’s interesting to note, too, that when Facebook first went public they had 900 million “users” or “members.” Now they have an “active user” base of one billion, as if the addition of the word “active” turns those empty chairs into comfortable seating, paid for and occupied by real, live human beings.
It’s hard to say which is more laughable – the idea that Facebook continuously manages to keep “growing” their “active user” base and they think investors are too stupid to notice, or the idea that investors really are too stupid to notice and they keep believing that all those chairs are going to be occupied by living, breathing human beings.
Either way, you have to hand it to Zuckerberg. He certainly knows how to work a crowd. Pull up an empty chair and help Facebook celebrate by watching their video about empty chairs.
Donna Anderson writes for Examiner.com
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