Facebook’s Brilliant Disaster and IPO Mania

Abyss of Intoxication
Abyss of Intoxication

Interesting counter-point to the IPO mania by Joe Nocera:

Splunk, an 8-year-old, money-losing data analytics company … went public five weeks ago. Splunk’s investment bankers priced the stock at $17 a share. But it closed its first day of trading at $35.48 — a gain of 109 percent — before declining over the next month. (It has rebounded in the last week.)

The offering raised $229.5 million for the company. But if the bankers had done a better job of pricing the shares — and had come closer to the $35 a share that investors were willing to pay — the company would have reaped twice as much. Putting cash in a company’s coffers is supposed to be the whole purpose of an I.P.O. Isn’t it?

Who got all that extra money? The hedge fund managers and Wall Street insiders who were allocated shares — and who immediately flipped those shares for a quick, easy profit. That’s how I.P.O.s work nowadays: It is assumed that the offering will be underpriced, and anybody who can get shares at the I.P.O. price is guaranteed a killing. This pattern has become the very definition of a successful public offering.

Compared to Splunk, the Facebook I.P.O. was, indeed, a disaster. For starters, there was only the tiniest initial bump, so the Wall Street speculators did not make their usual killing. What’s more, because the company decided, late in the game, to issue 25 percent more shares — and because Morgan Stanley aggressively priced the stock, at $38 a share — Facebook maximized its take, at $16 billion. Long-term investors should be happy about this outcome; the company now has plenty of capital as it competes with Google and the other Internet big boys.

But let’s be honest. Were there really any long-term investors in Facebook that first day? Judging by the torrent of criticism that has rained on Facebook and Morgan Stanley, it sure doesn’t appear that way. Instead, what the Facebook aftermath suggests is that we’ve all become brainwashed into believing that, when it comes to I.P.O.s, up is down and down is up. A successful I.P.O. is one where the company gets hosed by Wall Street. A failed I.P.O. is one where the company’s interests, not those of Wall Street speculators, are served. It’s Alice in Wonderland goes to Wall Street.

(click here to continue reading Facebook’s Brilliant Disaster – NYTimes.com.)

He makes a good point: most of the hullabaloo surrounding Facebook last week was from short term corporate investors complaining they didn’t their usual profits for a big name IPO. Are many of them planning on owning Facebook stock for five years? 



More Nocera:

The current price is partly a reflection of the I.P.O. maelstrom, and partly a function of short-term problems: The decision by General Motors, revealed just before the I.P.O., to pull its advertising, and its inability, so far, to generate much advertising on mobile platforms.

What it doesn’t reflect is where Facebook will be 5 or 10 years from now. I could easily make a bullish case for Facebook — with its 900 million users, and its wise-beyond-his-years chief executive. I could just as easily make a bearish case: Maybe Facebook will never figure out mobile. Maybe its moment will pass before it ever becomes the kind of technology juggernaut that Microsoft once was, or Google is. But being either bullish or bearish requires making a judgment that is years away from being revealed. For bullish investors, it means holding the stock patiently, waiting for the judgment to pay off. That’s what good investors do.

1 thought on “Facebook’s Brilliant Disaster and IPO Mania

  1. John Cutting says:

    Ha ha, this is good stuff. Earlier, I was tempted to consider the concept of propaganda. And here it’s showing its potential again. …Take a look at the last two sentences. They offer instructions to all would-be buyers of stock. If we assume that the content of the article is bought and paid for by Facebook itself, then the purpose of the article is to offer instructions to the masses as to how to think about Facebook for the next few years.

    Read the last two sentences, and consider oneself an expert. Show up to work, discuss it in detail at the water cooler, and buy Facebook stock. Then while FB uses your money to make its profits and covert investments in the middle east, et cetera, one can remain a loyal and long-term fan of FB stock. Why? Because the article says to buy now, stay put, and anticipate profit in years to come. Color me surprised. I’m seeing propaganda in news media coverage when I read these things today. Perhaps I should avert my eyes for a while – until my apparent internal mood for honest disclosure passes. Now I understand the true power of owning the media. It’s all in the unproven and slightly invisible subtext. It’s all in the buzzing and the herding of the sheeple. Remind me never to become a journalist. I would not be able to sleep.

    As for corporate investors who are purported to be complaining – hmmm, that sounds like an interesting strategy. Convince the public that Facebook is a good guy by suggesting that this fiasco did NOT profit them nearly as well as it could have. Logically, if the money makers are falling short in their endeavors behind closed doors, then this must be some type of “non corporate” stock opportunity. And in my mind as a consumer (i.e., slave to the coroporations), what’s bad for the corporations is good for me. I think I’ll go buy stock. And be very, very patient. And postpone my immediate needs in hopes of that day that is alluded to, the day when my judgment pays off. Judgement Day. Can’t wait. ……..Score for the buzz makers! Drag religion into it – prefabricated masses of sheeples. (Is that Gabriel’s horn I hear?) So my first prediction came true with ease — make a couple of new billionaires. Now for the second part — yeah, but can they do it without crashing the global market and forcing the slave layer of society to pay for it once again? I’m glad that losing my home and going without for a couple of years has made someone somewhere very, very happy. Not the kind of happiness that lasts, but hey – maybe it’s enough to buy themselves a Bentley!

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