05 Jun 2012

“The Perils of Only Selling the ‘Sizzle'” by PRSA Chicago president Debbie Harvey, APR

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Well, it’s official. The long-awaited Facebook IPO came, saw…and failed to conquer. Arguably the most anticipated IPO of all time resulted in quite an upheaval last month when it didn’t achieve the hyperbolic results some anticipated. It also provides a good example on the perils of exaggeration and overstatement, an important lesson for all communicators to understand.

Facebook’s public launch occurred amidst a cacophony of media hype and hatred. Back in February, the company was an angel and a devil: some viewed it as an instant blue chip, while others believed it to be overpriced and a reckless investment. A few additional factors came into play that hampered Facebook’s instant success:

GM Shows Concern. GM announced it was pulling $10 million worth of advertising during the company’s roadshow, the time during which institutional investors meet management and decide whether they want to invest. While the financial impact was only a drop in the bucket of Facebook’s more than $3 billion in advertising revenue, it was a sign. A big one, at that – if GM was pulling ads because the investment lacked results, the move could create a domino effect in which others followed.

A Mobile Miss. The company also announced that its mobile users (the fastest growing part of its business) weren’t generating revenue. While not “new” news, a significant contributor to a negative perception of the company’s prowess in realizing the level of finances it was expected to achieve.

Underwriters Misjudged Demand. Underwriters raised the price range on the deal to $34-$38 from $28-$34, but priced the IPO at $38. Several institutions wanted in because there isn’t a very big menu of social media companies in which to invest. That said, the valuation of the company seems to be divergent from the value of what it produces – and delivers.

While the future of Facebook’s stock continues to play out, what’s important is this: communicators need to be gatekeepers to transparent, straightforward messages. While not all external factors can be controlled, part of Facebook’s challenges were its own publicity quoting staggering numbers in pre-IPO days, and touting a huge number of immediate millionaires that would be made in an effort to attract more and more investors. In today’s media world, it’s critical to first understand the quality of the steak on your plate…before you begin to sell the sizzle.