It often takes decades to build the sort of companies that the best executives and entrepreneurs hope to create. It can take so long that by the time this value is finally created, many short-term investors will have long since jettisoned their positions. In the last couple of decades, no company has better illustrated this than Amazon. After Amazon went public in 1997, Bezos ignored skeptics who claimed that the company “couldn’t make money,” and then, when Amazon finally proved these naysayers wrong, he ignored those who complained that Amazon should make more money. All the while, he kept on investing. Five years ago, for example, when Bezos decided that the world was ready for e-books, he poured resources into the Kindle at the expense of Amazon’s bottom line.
Bezos’s philosophy has created enormous value for Amazon’s customers. It has created more than 65,000 jobs. And it has also created mind-boggling value for Amazon’s long-term shareholders: At a recent price of $225, the stock is trading at about 130 times its IPO price. But that growth did not follow a straight-upward line. When the tech bubble burst, Amazon’s stock tanked. While the company continued to invest in the future at the expense of the present, the stock crawled along sideways for years. Impatient shareholders took losses, then missed out on the windfall when Amazon’s share price started to climb in 2007.
The letter that Zuckerberg included in Facebook’s IPO prospectus is even more direct about his priorities than Bezos’s was. Zuckerberg wrote this letter himself, a Facebook source says, and it begins with the following sentence: “Facebook was not originally created to be a company.”
Rather, Zuckerberg explains, Facebook “was built to accomplish a social mission—to make the world more open and connected.” Then Zuckerberg reveals why he’s telling us this: “We think it’s important that everyone who invests in Facebook understands what this mission means to us, how we make decisions and why we do the things we do.” Later, he spells out it out again. “We don’t build services to make money; we make money to build better services.”
For short-term investors, the letter amounts to three-alarm klaxon: “Don’t buy this stock!” Because not only is Zuckerberg declaring that he considers Facebook’s social mission a higher priority than Facebook’s business and financial mission—a view many on Wall Street would consider treasonous—he also has complete control over the company. All shareholders will be able to do if they disagree with his decisions is complain. And Zuckerberg has long since demonstrated that he’s willing to withstand bitching while he executes his plan.
In early April, Zuckerberg did something that started his critics grumbling anew about his stewardship of Facebook. With the then-rumored IPO date only a month or so away, he decided to buy a little mobile photo-sharing company called Instagram that had no revenue and only thirteen employees. He spent $1 billion of Facebook’s stock and cash to acquire it—without asking anyone else’s permission or advice.
The billion-dollar price tag, many pundits concluded, was clear evidence that the tech bubble was back—an assessment that called into question Facebook’s valuation at a critical moment. A corporate governance expert told The Wall Street Journal that Zuckerberg’s Instagram move was exactly the sort of situation from which boards were supposed to protect minority shareholders.
But experienced tech executives concluded that the deal was shrewd. For the equivalent of around one percent of Facebook’s value, Zuckerberg had bought one of the hottest companies in the white-hot mobile sector, an area where Facebook was weak. He had stolen Instagram out from under an emerging rival, Twitter, and he had eliminated a potential competitor to Facebook’s vital photo-sharing function—both of which will protect the company’s bottom line as the industry evolves. He had done the deal in a weekend, because he still believes in moving fast.
It’s true that in the process, he threatened to delay Facebook’s IPO as the company scrambled to update its SEC paperwork. But to Zuckerberg, a minor IPO delay would have been of little consequence. As CEO, he has more important things to think about.