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IDontUseTheForumSoWhyAmIForcedToMakeANickname
IDontUseTheForumSoWhyAmIForcedToMakeANickname
What were they thinking: Facebook IPO
Brian Bailey
5/25/2012 9:52 AM EDT
Well, the Facebook IPO has happened and investors, apart from those that were in before the IPO, have lost money and they are looking at who to blame. A 20% drop in the first few days is not a good sign although it does seemed to have stabilized at these levels. There are some pundits out there that are telling us – “this is OK. Amazon went down at first, but look at what it has done since then.” Others take the other side, saying this is just another example of investor eagerness at Internet vaporware. Investors expected that they couldn’t lose money and because that has been proven to be false, are upset. Others are claiming that the underwriters were not totally honest and withheld information. OK – let me just ask: did any of those who bought at the IPO actually read the prospectus and believed they were making an informed decision? Of those, who were investing in the long term prospects for the company rather than wanting a quick gain from the stock?
We have seen this happen time and again, and yet nobody seems to have learned from their mistakes, or at least because they are embarrassed at their previous failures they forget the losses and brag about the successes – oops I mean luck. Why would anyone invest in an IPO when it is almost certainly going to present better buying opportunities when more of the stock becomes available such as when the insider shares begin to have less restrictions, and the hype has subsided. If you really believed that there will never be a better price, then you would be overjoyed at the 20% decline in the stock as a buying opportunity to average down.
One thought that crossed my mind is that if I were a lawyer, I could play both sides of an IPO. If the stock goes up – great, money in the bank. If it goes down, be ready to slap lawsuits on people and get the business associated with creating a class action lawsuit. It is amazing how quickly after the IPO certain things are discovered. Maybe if investors had done the same amount of work beforehand, they may not have invested.
Lastly, the prospectus used to be called a Red Herring. Perhaps we should remember that next time a big IPO comes along, especially one that is based on future promises rather than a proven track record. I will not be interested in Facebook until they have proven that they can grow their revenue stream in a sustainable manner and can handle the migration to mobile.
As you can see, I have little compassion for trading losses. Do you believe that the small guys are left out in the cold?
Brian Bailey – keeping you covered
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David Ashton
5/26/2012 8:42 PM EDT
We have a very good magazine "Money" here in Australia whose founder frequently comments "If it looks too good to be true, it IS too good to be true." And never a truer word was said. Caveat emptor.
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KB3001
5/26/2012 11:09 PM EDT
It was clear to me from the start, and you do not have to be a financial wizard to realise this whole Facebook IPO has been nothing but a scam. Yes, the underwriters were not honest with the investors and they did it deliberately to gain money off their back. It is criminal in my opinion and they should be prosecuted for it! I gave my reasons in another article - I copy them here anyway:
For a start, there are billions of Facebook shares, which means the Earning Per Share is going to be abysmal. Secondly, this whole social media business is like a castle built on sand. Indeed, it would not take much for large numbers of people to switch to other providers or turn off their accounts altogether (e.g. in protest). What's the worth of Facebook then?? Thirdly, Facebook's monetising value has yet to materialise, so the jury is still out. In view of the above, do you really believe Facebook to be worth more than Google, GM etc.? No way....
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David Brown
5/29/2012 3:22 AM EDT
You don't have to be a maths genius to realize that Facebook's IPO was overrated. At something over $100G total price, and about 900M users, it means each user is valued at about $120. Since at least 90% of "users" on Facebook are either fake, duplicate, or almost unused users, and therefore worthless, that means $1200 per real user. Then there is a solid proportion who are heavy users, but have little money (kids, students, and people who spend their time on Facebook rather than working!). So that leaves something like $2000 per valuable user who uses Facebook at least a few times a week.
Then cut the user base in half again to account for people using adblock software, or who are simply good at ignoring adverts.
Does anyone /really/ think a Facebook user is worth $4K in advertising revenue? Even with Facebook's side business in selling people's private photos, and their current attempts to get money from people for posting "important" comments, I think the valuation is out be a factor of about 100.
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IDontUseTheForumSoWhyAmIForcedToMakeANickname
6/1/2012 2:33 PM EDT
Part 1:
One of the reasons facebook was hyped into the spotlight is the treasure trove of data on individuals. If you've ever looked at the details of an 'active' user, you could easily assess their interests, beliefs, politics and mannerisms. While they don't mention each detail specifically, enough data is present so that we can extrapolate it. Not only is this of vital importance to police/government/security agencies, but it also helps to target ads to specific users with the premise that getting a response from 90 out of 100 targetted ads is much more efficient than getting 90 out of 1 million ... and this is where the perceived value is.
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IDontUseTheForumSoWhyAmIForcedToMakeANickname
6/1/2012 2:33 PM EDT
Part 2:
From the start, the IPO was over valued. You'd have to be an idiot not to see it (apologies to those who purchased it). In addition, if you even vaguely followed what was happening within facebook, you'd see that it was changing from a social media outlet to stay in touch with friends, to an advertising medium which companies use to retain clients (ie facebook users). The final nail in the coffin being the proliferation of facebook/twitter/linked-in/google+/etc. links on tv/magazine ads, webpages and cereal boxes. Sadly, their impact has lost all meaning (Note: no disrespect meant to this website or the author for including them). Does anyone over the age of 20 actually click on these links? Is it important to anybody in the world that I 'like' this article other than the authors ego and the advertising department of EE Times?
If you ask me, I think that most investors are still drunk from the losses of Y2K and the economic challenges of 2007/08. They are looking for ANYTHING to save themselves from drowning and facebook appeared as a life preserver awaiting their grasp. No other IPO in recent years had soo much pre-hype going on. That should have been a sign in itself. If you polish a 'turd' and cover it in glitter, it doesn't make it any less of a 'turd'. All that glitters is not made of gold and the investors need to remove their rose colored glasses to see this.
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