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Social networks are triumphant on the stock exchange, traditional media are declining

11 October 2013 / 18:10:08  GRReporter
3927 reads

Ivan Petkov

In our categories "Media News" and "Technologies" we pay due attention to social networks and to the development of different types of media, which is logical because modern media are inextricably linked with the development of technology. On the other hand, an unprecedented process of updating and digitization of traditional media, of their active penetration into the Internet has been observed over the past few years. This has led to the emergence of new ways of accessing content, about which we have written, namely that, in addition to their web sites, the media reach their readers through social networks, applications for tablets and smartphones, through their YouTube channels, RSS feeds and various readers for them. It will take years for the processes that I mentioned to develop and to be exhausted whereas new trends and processes will evolve in the meantime. A similar process at present is the trading of social networks like Facebook and Twitter on the stock exchange, or their initial public offering (IPO), as is popular among financiers.

Facebook’s listing on the stock exchange was not without shocks and was followed by a considerable decline in shares. As the expectations were high, ordinary investors were disappointed by the decline in shares as the original price of $38 a share had dropped by half. It turns out that Facebook had been betting on the wrong mobile technology for more than two years, as announced by Facebook’s founder Mark Zuckerberg late last year. HTML5, which is considered as the future of the Internet, was not sufficiently developed to meet the requirements of the mobile applications of Facebook, especially regarding the integration of mobile advertising. Many supporters and proponents of the technology stood in its defence but the fact is that Facebook has given up HTML5 and has started to develop separate applications for each mobile platform.

Obviously, this was a good move because it had restored investors’ confidence and the prices of the shares of the most popular social network had increased again. The promises of mobile advertising in a social network with over one billion users, many of whom are using it on their tablets or smartphones, have proved attractive and investors have already evaluated Facebook at $20 billion. What an impressive amount! Isn’t the social network overrated? According to some analysts, it has more potential for growth and development. According to others, the shares have already inflated a financial bubble, which the stock exchange will adjust whereas the analysts themselves have hastened to lower their optimistic forecasts. According to the third group, it all depends on whether Facebook will be able to meet the expectations and to find a balance between its profitable activities and the ones which are resulting in tons of losses in order for it to maintain its shares at the current levels.

Facebook is not the first social network that has become public. LinkedIn, the network of professional contacts, capitalized on $9 billion, which was considered as the most significant appearance of a technology company on the stock exchange after that of Google. The initial price of $45 per share now amounts to an impressive $226 per share. LinkedIn and Facebook are currently trading at 20 times the market value of each company.

Against this background, it is expected that Twitter will be the next social network listed on the stock exchange as it has the potential for growth and development. Leading investors and analysts therefore believe that the investment will not be as risky as it was initially in the case of Facebook. The initial share price is not yet known but it is expected that the company will be traded at around 28 times its market capitalization. Meanwhile, the Prince of Saudi Arabia, Alwaleed bin Talal, has stated that he does not intend to sell any of his shares in Twitter, when the company becomes public. The Prince, who is the nephew of King Abdullah and owner of Royal International Investment Company, invested $300 million in the social giant at the end of 2011.

It is interesting to know that, at the upcoming offering of securities, only one of the owners of shares will become a billionaire, namely Evan Williams who is the largest individual shareholder and former CEO of the company. He holds 12% of it, or 56.9 million shares, and he is going to become the only billionaire on paper due to the IPO. Probably he will receive about $1.2 billion if the evaluation of Twitter amounts to just under $ 10 billion. Jack Dorsey, who is often the public face of Twitter, has a share of 4.9% or 23.4 million shares, which would bring him about $470 million. By comparison, CEO Dick Costolo holds about 7.5 million shares or $ 150 million, and Peter Fenton, who is a member of the board of directors, holds 6.7% or 31.6 million shares worth about $630 million.

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