Facebook IPO: Investors enamored. Users? Not so much.
Facebook’s initial public offering will be the largest and perhaps the most highly anticipated Internet deal in history.
Faced with great expectations, however, Facebook is staring down some potentially unnerving obstacles when it comes to key areas of monetization and growth: public distrust and display advertising apathy.
More than half (57 percent) of Facebook users polled said they never click on ads or other sponsored content when they use the site, according to a new AP-CNBC poll. Another 26 percent said they hardly ever engage in such activity. Only 4 percent of users say they often click on ads — results that are only slightly better than the 2-3 percent clickthrough rate some experts consider the benchmark for effective banner ads.
While the company makes money, in part, simply by displaying sponsored content, user clicks are a critical part of an advertiser’s calculus when gauging the effectiveness of those ads and how much they’re willing to pay for them. In the first quarter, Facebook generated 82 percent of its $1.06 billion in revenue from advertising sales. In the company’s online IPO pitch to retail investors, Chief Financial Officer David Ebersman said the company is working to make ads “more relevant, more social, and more engaging” as it looks to grow.
While Facebook has been able to decrease its reliance on sponsored content (down from 98 percent of sales in 2009), the hopes of expanding the company’s e-commerce footprint also faces public resistance, the poll showed. A majority of participants (54 percent) said they wouldn’t feel safe using the platform for financial transactions such as purchasing goods or services; only 8 percent said they would feel extremely or very safe in doing so.
While Facebook currently has a limited market for real goods and services (most financial transactions are done for virtual goods and games), analysts cite e-commerce as an extremely lucrative, and untapped, market for the platform — one that could be vital for the company’s future growth.
The public also remains wary of Facebook’s valuation, widely bandied about as $100 billion, with just 3 percent of respondents saying they thought the company would be undervalued at such a number — half said they thought it would be overvalued (that view rises to 62 percent among active investors). Views are also split on whether or not shares of Facebook stock would make a good investment — with progressively less positive opinions for older age groups.
The youngest respondents (age 35 and under) were most likely to say Facebook would be a good investment (59 percent said yes), followed by baby boomers and Generation X-ers (55 percent and roughly 50 percent, respectively), followed by seniors (only 39 percent).
As for Mark Zuckerberg, the wunderkind CEO who turned 28 on Monday inspires somewhat tepid confidence as a leader, with only 18 percent of respondents saying they were extremely or very confident in his ability to run a large publicly traded company like Facebook. Yet pinning down a specific reason was difficult for respondents, who neither cited his age, temperament, nor reputation as significantly affecting those abilities.
Facebook users have consistently cast a wary and suspicious eye on the platform: 59 percent of respondents said that they had little to no trust in Facebook to keep their information private. Yet despite those ongoing concerns, the number of users (and their engagement) continues to increase. Facebook has grown to 901 million monthly active users worldwide, with personal computer users spending six to seven hours per month on the site (compared to just 3 minutes for Google+ users), according to recent data from ComScore.
For its part, the company has taken steps to combat certain user concerns, particularly on the issue of privacy. Last week, the site disclosed additional information about how it captures and utilizes data from users.
Charting a future course may prove more difficult than meets the eye for the company, according to the poll, and navigating that landscape under the daily pressures of a public company could prove even more difficult.
The AP-CNBC poll was conducted from May 3 through May 7, with a sample size of 1,004 participants ages 18 and over. The margin of error for the poll is +/- 3.9 percentage points.
The Facebook IPO is expected to price Thursday night, and the stock will start trading Friday.
