The 7 Ugly Truths About Facebook

(Tim Sprinkle)  With nearly a billion users worldwide, Facebook (FB) is one of the hottest sites on the Internet and a defining force in online media.

But since going public on May 17, the ever popular social network has started to show a few kinks in its digital armor. First the stock price tanked. Then its domestic user growth slowed. And of course privacy concerns and data security remain ongoing issues for the company as it expands globally.

But for all the hype surrounding Facebook, the fact remains that it is an imperfect company with its fair share of internal and external struggles, like any firm. Consider these seven little-known facts about the world’s largest social network.

1. It has a problem with fake accounts

According to a regulatory filing released earlier this week, Facebook itself estimates that as many as 8.7 percent of its 955 million worldwide active accounts are in fact duplicates or fakes, accounting for some 83 million “users.” Of these, about 46 million are duplicate accounts (which anyone who has a “work” and a “personal” Facebook account can understand), 23 million are user-misclassified accounts (such as profiles assigned to pets or businesses) and about 14 million are pages set up for spamming or other untoward uses.

“These estimates are based on an internal review of a limited sample of accounts,” the company said in its SEC filing, “and we apply significant judgment in making this determination, such as identifying names that appear to be fake or other behavior that appears inauthentic to the reviewers.”

2. Bots may be gaming its advertising

A startup called Limited Run has stopped advertising on Facebook and recently went public about its experiences with the company, saying that as many as 80 percent of the clicks it received on its Facebook ads appeared to be from “bots” (web robots) and not real people. The allegation implies that Facebook is juicing its click rate to overcharge its advertising clients and give the appearance of increased traffic.

In response, Facebook told CNBC it is “currently investigating their claims.”

3. Its revenues aren’t that great

Despite all outward appearances (the 955 million users, the splashy IPO, the globetrotting CEO), Facebook isn’t exactly raking in the cash when compared to other Internet firms. In fact, PaidContentrecently released a list of 10 Web companies that are doing better than Facebook in the revenue department.

That’s right — Facebook dominates the business pages almost every day but is only the eleventh richest digital content site on the Web.

Obviously Google leads the pack, but there are some surprising names on the PaidContent list, including Microsoft, Bloomberg, Thomson Reuters and, yes, even Yahoo!.

4. Its stock price won’t stop falling

Facebook’s IPO was priced at $38 a share on May 17 and has pretty much sunk like a stone ever since, recently slipping under $20 a share for the first time, a 45 percent drop. What happened? Everyone has a theory — maybe the IPO was mishandled, maybe there was too much hype, maybe Facebook was just overvalued from the start — but the fact remains that the social network has lost about $43 billion in market cap in the past two months (half of its original valuation) and is already one of the worst performing social media IPOs to date.

Unfortunately for Facebook, the worst may be yet to come. Starting next month, nearly 1.7 billion more shares could start hitting the market as employees become freed up to start selling their holdings, which could more than quadruple the number of Facebook shares now trading.

5. Executives are leaving

As happens just about any time a startup goes public — early employees stick around through the IPO, cash out and then move on to new things. At Facebook, however, several high-profile recent defections have raised questions about the company’s leadership and its prospects going forward.

This week, both Katie Mitic, Facebook’s former director of platform marketing, and Ethan Beard, the company’s former director of platform partnerships, announced plans to leave the company, bringing the total number of executive departures since Facebook’s IPO to three. Bret Taylor, the company’s former CTO, left in June.

6. Its reputation is suffering

It seems like a lifetime ago that Facebook was the hot, new startup that engineers were begging to work at (even competing in coding competitions to earn coveted internship spots, if 2010 film “The Social Network” is to be believed). But that glitter has faded post-IPO and, although Facebook remains a force in Silicon Valley hiring, it is starting to run into opposition for the first time in its brief history.

Case in point: App.net founder Dalton Caldwell stirred up controversy earlier this week after heeffectively turned down an “acqui-hire” offer from Facebook, in which his startup would be purchased by the social network and then shut down as a way to bring his staff on board.

Caldwell’s very public “thanks, but no thanks” response set off a firestorm of discussion in Silicon Valley, where acqui-hiring is a common and generally accepted part of doing business. But, like his stance or not, the fact remains that there are now developers in California who do not want to work at Facebook, and that’s a new reality for the company.

7. Insiders are selling their stock

More than a few Facebook insiders dumped their stock on the IPO, making millions in the process. That fact alone was not surprising; many of these folks had been waiting for years to cash in on their investments.

But when an IPO goes as badly as Facebook’s did, having a group of investors and senior executives sell their stock at or near the peak price does tend to discourage other buyers. Overall, Facebook’s insiders sold $9.8 billion worth of stock at the IPO, accounting for some 241 million shares, with CEO Mark Zuckerberg taking home a cool $1.14 billion and early Facebook investors Accel Partners selling 57.7 million shares for $2.1 billion.

Had these insiders waited until today to sell, their shares would now be worth less than half what they got, or about $4.8 billion in total. Zuckerberg himself lost $423 million on paper after yesterday’s drop, knocking him out of the top 10 of the richest technology titans.

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