I've had a similar experience and similar thoughts. I'm a strong believer in free markets, etc, but sometimes I don't understand the unending need for growth (i.e. why is it considered a bad thing that Facebook is so large that it doesn't have much room for growth?) If you're large and profitable, what's wrong with that? It often seems like the relentless pursuit for growth leads to short-term decisions to increase profits that have long-term consequences of reduced customer satisfaction and thus lost profits.
I think its a fundamental flaw of the public company ecosystem. Management is driven to have a very short-term, myopic view of shareholder value (i.e. stock price quarter to quarter). This was made much worse by the rise in profile of analysts in the late 90's tech boom with increased focus on short term earnings guidance. Perhaps eventually Zuckerberg will be replaced by a more market-savvy CEO. Also being public will force a giant set of obligations and priorities that has nothing to do with their offerings (shareholder proxies, disclosure, class action derivative suits, SOX compliance, investor relations) and will suck huge resources.
Being public will make FB a poorer company and service.
As a side note, I love how reporters of newly public companies quote risk factors from a 10-k and present them as some significant revelation of a skeleton in the closet. Risk factors are required disclosure and attorneys stuff them with horrible sounding proclamations that often are really just stating the obvious when you really read them. They are cheap insurance for the public company - not sure anyone declines to buy a stock based on risk factors but the company can say "I told you" in the event of certain shareholder suits.
I'm reminding of a picture of a board meeting at NeXT, and I vaguely recall Warren Buffet being mentioned, as either on the board, or giving Jobs advise. And one of Buffet's stories about getting turned onto stock trading by a guy at another firm telling him that the market in the short term is a voting machine, but in the long term, it's a weighing machine. You want to guess the right weight.
But without those public markets, Facebook would never have gotten anywhere close to where they are today because there would have been no major investments.
Instead, we would likely have multiple, smaller networks that we have to pay for because they wouldn't be able to bootstrap to a level that advertising can cover. That would not necessarily be a worse world.
You're questioning the fundamental philosophy ow Wall Street (I almost wrote capitalism instead but I don't know if that's true). Solvency is not enough to drive stock prices because the price of a stock is a bet on the future value of the company, not the present value. I don't like it either...
It's not really about "like" or "not like" but fundamental economics and mathematics: things that grow behave differently then things that don't, and are worth more. Suppose FB found a way to consistently make 1B a year, give it to the investors, and only grow as much as inflation. Then the valuation would settle on something like 10-15 billion (plus however much cash it has on hand at that time). And a solid part of the market will love it as a long-term investment and tout its value. On the other hand, to value it at 50 billion you have to assume that its earnings will at least quintuple over time, so good luck to them.
You can't call this a Wall Street philosophy; Facebook was trying to grow massively before they were public. In fact, that's where the growth was happening. At any point in time they could have decided to remain where they were, with the money they were making to pay the bills, and stayed private. They didn't. Instead, Facebook told us that they were going to, essentially, grow the company to 5 or 6 times the current state.
In other words, Facebook caused Facebook's problems, not Wall Street.
But the most important factor that is considered during the IPO dog and pony show is projected growth. Nascent companies need at least double digit growth, preferably triple digit. And every quarter, when public companies announce their earnings, year-over-year, the stock price is impacted as much by revenue growth as it is by earnings/share. Ignoring high-frequency trades, the two main philosophies of trading on public exchanges are value investing (Warren Buffet) and growth investing. Facebook caused Facebook's problems in hopes of maximizing its IPO.
It's part of the tradeoff of being investment-funded. Investors offer you money based on an estimate of the future value of your company. When you take the money, you now have to get the company to at least that value for them to be able to make money on their investment by selling their stake. If you can't make that happen, the investors will be very unhappy with you, possibly up to the point of using their ownership stake (or joining with other dissatisfied stakeholders) to have you tossed out and replaced with a "better" manager in order to "save the company."
In other words, "large and profitable" is enough if you're organically funded, but if you're investment-backed you have to not just be profitable, but at least as profitable as your investors predicted you would be.
In Facebook's case, those predictions could be quite large. On the pre-IPO end of things, Goldman Sachs' 2011 investment in FB, for instance, was premised on a $50 billion valuation (http://dealbook.nytimes.com/2011/01/02/goldman-invests-in-fa...) of the company. Depending on whose numbers you believe for the total number of FB shares outstanding (see http://www.businessinsider.com/facebook-shares-outstanding-2...), at $20/share their current total value is somewhere between ~$40 billion and ~$55 billion. The high end of that estimate is north of Goldman's valuation, but the stock won't have to fall much farther for Goldman to get nervous.
Similarly, when the company goes public, now you have "the markets" to deal with as investors as well. Just like VCs, public investors buy into a stock at a certain level because they believe that level represents a value less than the company will eventually be worth. And also like VCs, if your management makes that bet fail, they can and will organize to remove you, or at least make your life difficult with an activist board or other oversight mechanism. When Facebook opened for public trading, the market estimated its value at around $104 billion (http://dealbook.nytimes.com/2012/05/17/facebook-raises-16-bi...) If you bought in at that price, your investment today would only be worth a little more than half of what you paid for it. That doesn't make for happy investors.
Investors want to see a return on their investment, and they prefer to see it today rather than tomorrow. Corporate managers who want to stay corporate managers do everything they can to deliver it, and sooner rather than later. Hence the focus on short-term metrics like quarterly profits over long-term sustainability.
"...investors will be very unhappy with you, possibly up to the point of using their ownership stake (or joining with other dissatisfied stakeholders) to have you tossed out and replaced with a "better" manager in order to "save the company."
You need to add "if they can". One of the fantastic things of Zuck is... he accepted the money but gave himself 51% of the company. So investors are f*cked and can't do anything.
That someone could invest under those terms is beyond my understanding, but they did. Greed is going to make people loose a lot of money.
