All the financial analyses seem to agree that the FB IPO was a disaster. For FB. Now I understand it was a disaster for the insiders who always get to buy the shares at the strike price. And it wasn’t too happy for the original investors who had to wait, I think a couple months, to cash in. But in what way was a disaster for FB? As far as I can see, the company itself managed to wind up with twice as much cash as the stock seems to be actually worth. Contrast that with the Google IPO (and many many others) in which the company raised half as much (or even less) than the company was actually worth and the insiders were the ones that raked in tremendous unearned profits.
Clearly my analysis differs from that of the financial gurus. Can anyone explain why it is wrong.
You’re not wrong. The financial analysts are all making a big show calling for Mark Zuckerberg’s head, but The Zuck still controls ~60% of FB’s shares, so he can tell the company’s board to go fuck themselves.
Facebook’s IPO has made actual billionaires out of people who were paper billionaires for years. They also sucked up a boatload of investor money and are working on ways to plow it back into the site. They’ve thrashed all comers (Google+, Zynga’s revolt) and they’re still the number one name in social networking. Yeah, the company is just fine.
That being said Facebook does sort of relfect the somewhat feral attitudes of it’s founder. If I was an investor or partner in a deal with Facebook I don’t think I would rely on their innate integrity in dealing with them.
Note: Zuckerberg at IPO-time owned only 22% of the company. He controlled 57% of the voting shares. (That there are two classes of shares in companies is, IMHO, a major violation of proper corporate governance. The people losing money in Facebook stock, especially the lockins, cannot do anything to fix the company. Zuckerberg can go out and blow another billion on the next Instagram if he wants to.)
There’s the money side of the IPO and then there’s the management side of the IPO. It was botched very, very badly. Key information was shared to selected people, there were mysterious trading problems, brokers lied to customers, etc. Lawsuits abound, some of which are going after Facebook. Lawsuits aren’t good for business. They might not lose $10B in the lawsuits, but it’s going to hurt their bottom line in the long run. And their bottom line cannot take much more pain.
At IPO the PE ratio was somewhere over 100. A 100! (Apple’s is under 15.) And the revenue news hasn’t been good since. This is a stock doomed to crash. Never a good thing.
What it (plus the Groupon fiasco) really hurts is any respectable tech company going public in the next couple years.
Facebook’s IPO was successful for FB in that they got $100 fucking billion in cash. It was a phenomenal failure for everybody who invested, in that they gave Facebook $100 fucking billion in exchange for something that seems to be worth a fraction of that.
Facebook’s underwriters deserve plenty of blame for overvaluing the company, and they and FB management deserve plenty of blame for botching the IPO itself. On the one hand, they have a lot of cash. On the other, they’ve pissed off so many people that they will never be able to issue additional equity, at least without a significant change in management.
So, I think you’re comparing two very different IPOs, and I think you still underestimate how much original Google owner/employees raked in on that deal. They sold just enough to give the market a taste, and then reaped the benefits of being publicly-traded.
The primary difference is that since day one, Google stock has always consistently beat the market (FB is that little green downward slope in the bottom right corner) and made investors money for any given reasonable time frame. That creates investor confidence and goodwill that results in higher valuations. Any future stock offerings the company does (or when the original owners go to cash out the shares they still retain) will benefit from that increased investor confidence.
So, both Facebook the company, and the individual original Facebook stock holders, do lose something from the stock’s poor performance.
If the company was that fine, the stock wouldn’t have lost half its value in very little time.
Most of the “paper billionaires” couldn’t sell at the time of the IPO. When the lock was off, and they could sell, they had half the value that they thought they had at IPO time, even if they were being conservative and assuming no bounce. There is already talk of disaffection from all those people who didn’t make nearly as much as they thought they would.
But FB’s real problem is monetization of all those users. Google has done this really well. Zuckerberg appears to not give a crap, but I think he’s been woken up. And they were late in realizing that most of their users seem to be using mobile devices, which they weren’t capitalizing on. So there are plenty of reasons for the dislike of the stock besides the botched IPO.
People upset by this didn’t apparently bother to read FB’s prospectus or even Zuckerberg’s letter to shareholders in which he said (in part, ellipsis mine):
So sayeth the guy who controls 57% of the voting stock.
I think one of the few bad parts about the IPO is that it got investors and others to take a closer look at FB’s financials, which in the long run, is probably bad for the company. Zuckerberg may not have to worry about losing control, or the daily fluctuations of the stock price, but he does have to worry when analysts are skeptical they can grow at an acceptable rate.
He needs to worry when GM pulls their Facebook ads because they feel they are not effective. The impact of that news is greatly magnified by the fact that they are now a public company whose every stumble is subject to public inspection. Nobody wants to waste money advertising with a company they feel is rudderless, overvalued, and ineffective. The crashing of their stock seems to give credence to that narrative which could, in turn, negatively affect their daily operations.
I don’t think it’s something that is insurmountable. But the bottom line is that if you are a large company looking to advertise, you might decide Facebook is not for you based on the impression that the company is failing it’s customers and investors. Things you would only know because of they are under great public scrutiny.
I’m not sure how Facebook handled their employee compensation, but it’s not terribly uncommon to give out stock options as bonuses and such well before a company goes public. These take a long time before the employee can sell them after the IPO (I think the one time I went through the process it was a year? Maybe 9 months).
The value of these has, of course, dropped tremendously–and while perhaps few of any employees in this position may have come out true millionaires if the stock had been like Google, there still could be a bunch of people there who had been sold on the idea that in the long run, taking the options and staying with the company was better than getting a cash bonus, or finding another place to work.
Was it me, or did the Facebook IPO seem like 1999 all over again, with the same braindead assumption that the stock was worth far more than it really was?
FB is still a hugely unknown quantity-remember Amazon? It was over 12 years before Amazon made money. The question I have: FB seems to be a service that is easily duplicated-why would there be any “customer loyalty” to it? It is free, and seems to be a way to communicate with friends. Suppose a new , easier to use, friendlier website shows up? Could FB go the way of Myspace?
Mark Zuckerberg begs to differ. I’ve always believed that saying was a load of shit, but seeing it thoroughly debunked in black and white from the CEO really brought it home for me that some people just don’t get how the web works.
