Facebook IPO disappoints, to the delight of many

Facebook’s initial public offering underwhelmed investors in early trading Friday, but when you think about it, that’s not really surprising. The company is sailing into at least three powerful headwinds, one financial, one legal and one emotional.

The financial issue for Facebook is whether its revenue can match its reach. There’s a fair amount of pessimism about the value of Facebook as an advertising platform, as reflected by General Motors’ announcement earlier in the week that it would no longer run paid ads on Facebook. The implication is that as valuable as Facebook might be as a branding exercise -- “Like us on Facebook and we’ll send you merch!” -- it hasn’t convinced advertisers yet that it can deliver a competitive return on their investment. Hence the troubling slowdown in Facebook’s revenue growth last quarter.

On the other hand, as my colleague David Sarno pointed out Friday, Facebook seems to have a vise grip on its users. And those users constitute, what, 14% of the known population of the universe? With that kind of stickiness, the company can afford to move slowly and keep trying different monetization techniques until it finds some that really work.

The legal issue is the risk that governments or courts will crack down on Facebook’s use of personal information. The Federal Trade Commission has already taken steps along those lines, but the European Union appears poised to go significantly further. Such restrictions and mandates go to the heart of Facebook’s value: its ability to collect personal data and match users with advertisers.

I’m sympathetic to the concern of privacy advocates who accuse Facebook of violating the promises it’s made to users whenever it suits the company’s financial interests. But it’s worth remembering that people use Facebook to share information about themselves, albeit with a select group of people. It’s not a privacy platform; it’s a publicity platform.

Finally, the emotional issue for Facebook is the widespread public sense that the people behind the company aren’t lovable, plucky entrepreneurs. Thank Hollywood and “The Social Network” for that, as well as the recent revelation that co-founder Eduardo Saverin has renounced his American citizenship.

Maybe it’s just me, but I detect a fair amount of schadenfreude at work. Facebook co-founder Mark Zuckerberg has done some admirable things with the company, such as insisting (for a while, at least) that Facebook was more of a social connection tool than a business and donating $100 million to help the Newark school system. But he’s not exactly a warm and fuzzy guy.

Saverin, meanwhile, avoids more U.S. taxes and reaps a bigger windfall from his Facebook shares the more they grow in value. So anyone who resents his decision last year to make his home in Singapore, where there are no capital-gains taxes, has to be rooting for Facebook’s stock to disappoint.

And so it has, at least in the early going. Midway through the first day of trading, Facebook shares were stuck near its IPO price of $38. It’s just a snapshot, of course, and the company will still raise a record $16 billion from the offering. And company insiders, whose shares made up more than half the stock sold Friday, will still reap billions from their sales. But for those who bought into Facebook on Day One, it’s an inauspicious start that’s bound to draw the wrong kind of cheers.

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