FB Stock Direction Depends on Zuckerberg
As Facebook Inc (NASDAQ:FB) evolves into a full-grown conglomerate, the company’s biggest asset is its founder and CEO, Mark Zuckerberg. To put it simply: the 32-year-old billionaire is an essential ingredient for FB stock’s continued upward trajectory.
His record is well established. Not only did Zuckerberg invent Facebook the product, but he also steered Facebook the company to an enormously successful initial public offering (IPO). FB stock has risen 272.02% since premiering on the NASDAQ stock exchange.
According to recent research, this shouldn’t be all that surprising. A study encompassing hundreds of businesses found that companies that are still run by their founders perform 3.1-times better than all other firms. It is the secret to success. (Source: “‘Founder’s Mentality’ Is a Company’s Best-Kept Secret, Bain Chiefs Argue,” Fortune, July 9, 2016.)
The stock market is littered with evidence. For instance, Amazon.com, Inc. and Alphabet Inc are both run by their founders and their stock prices are through the roof. Meanwhile, both Apple Inc. and Twitter Inc spent a few years without their founders. Over the last year, AAPL stock and TWTR stock have been trending downward over the last year. That’s something to think about.
Keeping Zuckerberg in Charge of FB Stock
Zuckerberg’s keen ability to navigate the technological landscape is also why Facebook is taking pains to keep him in charge of the company. In April, the company issued another round of FB stock—this time without any voting rights attached to the shares. (Source: “Facebook Reports First Quarter 2016 Results and Announces Proposal for New Class of Stock,” Facebook Inc, April 27, 2016.)
It was an unprecedented move. Companies have issued diluted shares in the past, where the voting rights were worth a fraction of full shares. But I can’t recall ever seeing shares without any voting rights at all. That’s definitely something new.
Some critics described Facebook’s maneuver as dictatorial, but really it was meant to keep Mark Zuckerberg at the helm of his own company.
You see, he wants to donate his wealth to charitable organizations, but most of his money is tied up in FB stock. He wants to sell those shares without diluting his authority over Facebook’s direction. Hence the new, non-voting shares. Zuckerberg’s shares of FB stock now carry so much voting power that he can liquidate most of them without losing control.
But here’s the most important thing: this arrangement benefits all of Facebook’s stakeholders because it ensures that Zuckerberg can’t be forced out of his own firm. Too many great CEOs have been “taken out” by corporate raiders or internal dissent.
If you’re still not convinced that Mark Zuckerberg is the only person who can keep FB stock moving upward and to the right, take a look at these three deals that couldn’t have happened without him:
Some people might not know this, but Facebook wasn’t the first Silicon Valley titan to approach WhatsApp. Google had offered the messaging app company $10.0 billion, but it refused. Facebook would have likely met the same result, except Mark Zuckerberg went over to the CEO’s house for dinner. He proposed a partnership and a seat on Facebook’s board of directors. Five days later, WhatsApp’s CEO barged into Zuckerberg’s house and said yes. They hammered out the deal right there, just the two of them. (Source: “The Inside Story Of How Facebook Bought WhatsApp For $19 Billion,” Business Insider, February 19, 2014.)
2. Oculus Rift
Another example of Zuckerberg’s incredible deal-making ability is the Oculus acquisition. Investors were throwing money at Oculus VR, so Zuckerberg went to meet the company’s founder. After testing an early prototype of the “Rift,” he realized the device’s potential. He knew it was more than just a gaming console—so he outbid everyone.
When Zuckerberg was still in his 20s, he paid $1.0 billion for a nascent photo-sharing app called “Instagram.” People thought he was absolutely insane. The year was 2012 and Facebook was on its way to an IPO. Such irreverent spending could have torpedoed the firm’s outlook, but Zuckerberg did it anyway. History has proved he was right to do so. Instagram is now pulling in an estimated $1.3 billion in revenue per year. (Source: “Everyone thought Mark Zuckerberg was crazy to buy a 13-person app for $1 billion,” Business Insider, January 30, 2016.)
Maybe these deals still would have happened without Mark Zuckerberg, but I doubt it.
Being in business is hard. There are an almost infinite number of decisions to be made, but founders are able to navigate this labyrinth of infinite possibility better than hired guns who don’t really know the company. As long as Zuckerberg is in charge of Facebook, I’m going to stay bullish on FB stock.