When Facebook went public in 2012, a great debate raged regarding the viability of an investment in this newly public company. Could the company really be worth the $100 billion that it was being valued at in its initial public offering? Could it be worth a lot more? Are small investors crazy to invest at the IPO? These were all valid questions at the time, but most people were missing the point and a sense of the larger picture. The beauty of the Facebook IPO, or any IPO for that matter, is that they happen at all. The grand sense of possibility and uncertainty of a new stock offering is what this country is all about and has always been about.
At the very founding of our new nation in 1776, we were a ragtag group of underdogs whose members craved more than the world offered them. It was a group that saw endless possibilities where others only saw the inevitability of the status quo. It is absolutely no coincidence that most of the world’s great inventions, from the light bulb to the airplane to the computer to the Polio vaccine, arose from American ingenuity and the entrepreneurial spirit of its people.
A populace with no hope is not very inventive. People armed with optimism and dreams, people who can stumble off into the void of uncertainty, invent great things. The Facebook IPO allowed us to celebrate not the wealth that was being created, but the marketplace itself that allowed such optimism, innovation, and ambition to flourish.
In 2002, three of the largest companies in the world by market value today were in their infancies. Apple was just rolling out its newfangled iPod product, and the company only had a market value of $6 billion. Google was still tiny and not publicly traded, and Facebook was not even a glimmer in Mark Zuckerberg’s eye.
Today, a mere seventeen years later, the market value of these three companies totals more than $2.8 trillion and is growing every day. In fact, 70 percent of Apple’s profits now come from a product that was not even introduced until 2007. Now that is a dynamic, innovative, fast-changing economy.
The Facebook IPO reminded investors vividly of the Google IPO in 2004. Then, as now, potential investors were analyzing a company that was short on revenue and profits and long on possibility. At its IPO, Google had earned forty-one cents a share in 2003 and had estimated its earnings of $1 per share for 2004. At the IPO price of $85, or 85-times forward earnings, the company appeared very richly valued indeed. Investors and the media endlessly debated the wisdom or insanity of investing in a company valued so highly and how fast the company would have to grow revenue and earnings to justify that price.
The IPO was successful anyway and investors took the plunge. What investors at the time could not have known was that Google would earn $2 a share in 2004, $5.33 in 2005, and $9.94 a share in 2006. In hindsight, IPO investors were paying only 9-times earnings, two years out, for a fabulous company that went on to earn $32.80 a share in 2011 and $54.75 a share in 2018. Google’s inventors and investors saw endless possibilities where its detractors saw risk, peril, and downside.
Uncertainty is what makes markets and is what makes America great. Our 330 million Americans are a diverse group with extremely varied views of politics, business, and lifestyle choices. However, in the never-ending race to create things that advance society and make the world a better place, you can take the best 330 million people from the rest of the world, and put them up against ours, and I will bet on our 330 million to win the race every time.
Facebook’s fortunes might have quickly flamed out like AOL, or Research in Motion, or WebVan. History is full of bright stars that burn out quickly. Could an investor have based an investment in Facebook on the valuation of that year’s current numbers? Absolutely not. However, investors did know that the founders had done an amazing job creating a very valuable something-out-of-nothing idea. They also knew that there were thousands of brilliant people at Facebook working long hours to create new products and services that could grow the company in the future.
More importantly for our economy, investors knew that the success of Facebook would spark a thousand new ideas for a thousand new companies and products. Some will succeed and most will fail gloriously. Fortunately, America has a culture that celebrates new ideas and risk-taking and a people that are the hardest working, most entrepreneurial, and most innovative in the world. That spirit will lead to the creation of other great companies that we have not heard of yet by founders that we will only get to know in the future. They will be inventing products that we did not even know we needed.
What will our world look like ten years from now? I have no idea, and that is an amazing thing. Old companies and ideas will fail, and new ones will rise to take their place. Our American future is uncertain. And we should not want it any other way.
