Facebook IPO Stumbles Out of the Gate 423
Facebook's much-hyped IPO kicked off today, but an anonymous reader points out that things didn't go quite as smoothly as investors hoped. "Public trading didn't get underway until about 11:30 a.m. ET, half an hour after it was supposed to. The delay was likely caused by the huge amount of interest in the stock – especially by retail investors. In the first few minutes of trading, Facebook shares were only up between 5 and 10 per cent and by noon were essentially back down to the IPO price of $38. Many observers had expected the stock to double in price by the end of the day, if not sooner." The NY Times has a data visualization showing how Facebook's IPO compares to other tech IPOs throughout the years, and how the first day of trading treated all of those companies. Meanwhile, the debate is lively over whether the social networking giant will be a good investment. "The banks helping take Facebook public want us to value this 8-year-old upstart at as much as $104 billion, more than Disney or Kraft Foods, though those companies earn three and four times more. That top valuation is also more than 100 times Facebook's earnings last year, versus 13 times for the average company. At such a high price, it will take years for this so-called earnings multiple to fall to a more reasonable level, and that's assuming the company can maintain its torrid earnings growth."
Re:It's stupid to compare to Facebook's profit (Score:5, Insightful)
Where have I heard that before? Ah, yes, we're back to valuation based upon "eyeballs" or "clicks." How'd that work out last time?
Re:It's stupid to compare to Facebook's profit (Score:5, Insightful)
When they (Score:5, Insightful)
announced this IPO, I was skeptical. Then they amended it, eight times (I think). Now, it seems to me that we've blown a rather large bubble - as the article says, this 104 billion is 100X their earnings last year. I wonder which set of retirees or naive persons will lose their asses on this one when it pops.
I remember when, recently, myspace was quite large. Does anyone else have a myspace page still? Now imagine if you owned 100 shares of that company. . . . . Now imagine your investment person has most of your retirement tied up in that company. . . .
Thoughts?
What a moronic conclusion (Score:3, Insightful)
A company issues an IPO and the closing price ends up at the same price as the IPO price? Not only is this not "stumbling out of the gate", but it means it was done right. If the price jumps too much, the founders of facebook lost out on a lot of money. If it drops, then the initial investors were suckers.
Whether Facebook is able to increase earnings remains to be seen. My gut is it will increase substantially, but not enough to justify the current P/E ratio once risk is factored in. But others think the opposite. So, the investment bank did a very good job in pricing.
Re:It's stupid to compare to Facebook's profit (Score:5, Insightful)
Stumbles? (Score:2, Insightful)
They NAILED the IPO, and neither undersold the stock(like LinkedIN did) and lose money that way nor did they value it too high and scare off any potential investors. I'm surprised and impressed.
Sure, for the guys holding the stock at FB it's a letdown, but the company nailed it.
Zuckerberg proves how smart he really is (Score:4, Insightful)
The press coverage of Facebook's IPO is completely idiotic. For years the investment banks have been sticking it to companies doing IPOs. If the stock gets sold at $38 and it ends the day at $100, that means the company *should* have raised more than twice as much as it did. And it means that the employees participating in the IPO also got shafted. The people who benefit in that scenario are the privileged investors who get to buy at $38 and sell a few hours later at $100.
If Facebook ends up close to $38 at the end of the day, it will be a rare example of the stock having been priced correctly at the start. Where it goes from here is anyone's guess, but I have increased respect for Zuckerberg. Google had a different IPO process but also didn't give away a lot of money. They knew what the banks were trying to do to them.
Re:When they (Score:5, Insightful)
If you are risk averse, stay away from IPOs? This ain't rocket science... the more risk you are willing to take, the higher return you will get long term. If you are not able or unwilling to stay in for the long term, or a drop in your portfolio will keep you up at night, play it safe. I am a moderately aggressive investor as I have a 30-40 year investment timeline and a Finance background. My mom who works for the government, hates risk and will be retired in five years should have a more passive investment strategy.
Re:It's stupid to compare to Facebook's profit (Score:5, Insightful)
Facebook is the identity of the internet going forward.
MySpace is the identity of the internet going forward.
Geocities is the identity of the internet going forward.
AIM is the identity of the internet going forward.
YAHOO Chat is the identity of the internet going forward.
Opendiary is the identity of the internet going forward.
Fucking 4chan is the identity of the internet going forward.
I think it might be a bit bold to say that this one site will be the face of the internet from now on. . . The internet is a fickle mistress, and small changes today can equal large changes in the future. The only difference between those other companies and facebook? Time. (yes, I know that some of them are still successful, I was making a point, just go with it)
Re:What a moronic conclusion (Score:4, Insightful)
Look at Zero Hedge posts following this today, and see how this is all through NASDAQ execution tricks, and underwriter manipulations.
Failbook was a bust.
Re:It's stupid to compare to Facebook's profit (Score:3, Insightful)
Google was no where as big of a company as FaceBook is now when they IPO'd. I just don't see where the money is to be made unless they branch out into Google's territory of search. FB adds are just harder to target than Google ones. They are half the price but without any click through. Branding would be about the only kind of advertising you do there unless FB gets into phones, gadgets, etc.
If there is a way to make money in social media FB IS the big player here.
Re:When they (Score:5, Insightful)
2) Did you really just compare myspace to Facebook and imply Facebook will go the same route? That's laughable for the foreseeable future.
I'd love to hear why exactly that's so out of the question.
Re:It's stupid to compare to Facebook's profit (Score:4, Insightful)
WTF are you talking about?
facebook is growing PROFITS at almost 100% every year. Revenue is up 5X over the last 3 years. they are about at the same point in revenue/profits as when google went public.
the only people i know who still use email are my mom and my kid's baseball team. everyone else i know uses facebook. gmail is mostly for spam and crap email
openID is dead. most legit websites with a login will let you use your facebook account. Facebook is the identity of the internet going forward.
I will say right now that that is only a portion of the population. It may be all that you know of but there are people that avoid Facebook because of one reason or another. Assuming that everyone has an id there, or even uses it regularly is similar to assuming everyone has an iPhone. It may be popular but there will just be people that wish to not use it.
Re:It's stupid to compare to Facebook's profit (Score:5, Insightful)
I think that's the crux between Google and Facebook, really, and probably why Zuckerberg seems so interested in integrating search into Facebook all of a sudden. I'll bet plenty of people post things to Facebook about how much they like some expensive trinket, but it's Google that gets to see which ones are actually looking into making the purchases. My long term prediction; neither company is going to go away anytime soon, but Google is going to see the growth while Facebook is going to start a slow slide into mediocrity with the next few years unless it can find a major source of revenue in all those terabytes of data it has.
Facebook's mission (Score:5, Insightful)
.
I wonder if Mr. Zuckerberg knows that the Internet has beat him to it.
Re:What a moronic conclusion (Score:3, Insightful)
> the closing price ends up at the same price as the IPO price?
but only because it was proped up by the underwriters: http://www.bloomberg.com/news/2012-05-18/facebook-underwriters-said-to-support-stock-at-near-38-a-share.html [bloomberg.com]
Re:It's stupid to compare to Facebook's profit (Score:5, Insightful)
Branding would be about the only kind of advertising you do there unless FB gets into phones, gadgets, etc.
Actually, branding is the LAST thing you'd do on Facebook. Place your ad on FB, and your brand would be seen as Spam, instead of as something valuable.
Why would any advertiser place their brands ad next to your friend from high-school throwing up, when they can place it next to a Kate Moss cover story in Vogue?
So, that's how branding works.
Re:10% Negative? That's a CRASH! (Score:2, Insightful)
I'm no expert but if the shares don't go up much doesn't that mean they were valued correctly from FB's point of view? Whereas if they were valued low and shot up, FB doesn't benefit as much. It just benefits those who bought/got the stock at the start.
http://www.nytimes.com/2011/05/21/opinion/21nocera.html [nytimes.com]
A huge opening-day pop is not a sign of a successful I.P.O., but rather a massively mispriced one. Bankers are rewarding their friends and themselves instead of doing their fiduciary duty to their clients.
Re:When they (Score:5, Insightful)
There was a time the same could be said for MySpace.
Re:It's stupid to compare to Facebook's profit (Score:4, Insightful)
Re:When they (Score:5, Insightful)
Hmm, no. I very much doubt any of that is true. Facebook is definitely past its peak. It's not actively bleeding users yet, but now that they have a bunch of shareholder to answer to, they will get greedier and even more maliciously corporate.
It's not like Facebook has a loyal fanbase. This is not Apple, nor Google, nor even Microsoft. It's a company that most people use for the sake of convenience, but most people have little respect for -- every change they make results in mass protest, and has done since its inception. Its parasitical nature and disrespect for privacy is well-known throughout the World. Just as with MySpace, people would drop it like an hot stone if another social network had their friends on it.
Now, for now, their friends are not on Google+ -- but that can turn on a dime. All it needs it Google to care about taking that top spot from Facebook. A good six month marketing strategy, some high profile users, and Facebook is a dead as MySpace.
That is all it takes. It can happen. And is very likely to happen at some point in the next 5 years max.
Re:And Facebook will NEVER monetize through ads (Score:5, Insightful)
Targeted adds...
ARGH!
Sorry, second time I've seen this. Driving me nuts. It's "ads". It's short for "advertisements". Count how many 'd's you see in "advertisement". You see "adds" when a new group of mobs attack you during a fight. You see "ads" in a newspaper. Well, you used to, back when people still read newspapers...
Re:It's stupid to compare to Facebook's profit (Score:5, Insightful)
There are a few issues with Facebook making a lot of money:
(1) - Click through rates of Facebook ads are abysmal, at best.
(2) - People use Facebook to share stuff, not to look for stuff to buy, thus they ignore most ads. Reason Google click through rates are better because people look for stuff on Google, often to buy.
(3) - Growth of Facebook in countries where the population has spending power, thus being desired products by advertisers, has stalled or it's very slow.
Re:It's stupid to compare to Facebook's profit (Score:4, Insightful)
Re:They remember the Dot-Com Bubble (Score:4, Insightful)
A bunch of investors throwing tons of money after dot-com companies on the belief that these companies, despite having no earnings, would somehow grow big.
Just like Facebook then.
Their income and profits are that of a medium sized business, not that of a top NASDAQ trading company.
Facebook are already stuck in the dinosaur age of the Internet. Facebook is a web 2.0 company, people are moving to mobile and Facebook have nothing to answer. They are not inventing or innovating, just acquiring other companies.
More businesses are going to be overvalued the bubble will pop and the fallout will be huge. Facebook will survive by the skin of their teeth, just like AOL, Yahoo and MySpace do today.
Re:When they (Score:5, Insightful)
No, because if this were true, then risk would not be risk. That is, if engaging in risky behavior somehow was safe, then it would not be risky.
The more risk you take, the higher the chance that you will end up sleeping under a bridge.
Re:It's stupid to compare to Facebook's profit (Score:4, Insightful)
Re:It's stupid to compare to Facebook's profit (Score:5, Insightful)
Google serving ads is different. For anyone seaching for a product they can throw sponsored links at the top of the search results page and they are often relevant to the person searching. This particular advertising mechanism actually makes sense and is probably one of the most effective around. Not that everyone is doing a search where ads are welcome, but that nobody goes looking for products or services on Facebook ads there are never relevant to what people are doing. I suspect FB click-through rate is much lower than Googles. OTOH, FB ads have images and reflect your "likes" even if they are not related to what you're doing at the moment. I suppose the jury is still out on this.
Re:10% Negative? That's a CRASH! (Score:4, Insightful)
Re:When they (Score:4, Insightful)
Efficient market theory has one major tennet. Basically that the overall demanded return is directly proportional to the riskiness of an investment. While markets are not 100% efficient, they are pretty efficient and multitudes of studies show this risk/reward expectation holds up in real life.
Risk is safe if you are able to engage in multiple non-correlated risks (your car insurance company does this well) or have a time horizon that allows you to ride out short-term (sometimes short-term can be 20 years or more...) downturns.
Please don't equate financial risk with jumping off of a bridge or even stupid risk like buying into your brother's Ponzi scheme. Financial risk has a precise meaning and it does correlate with long-term reward.
Re:What a moronic conclusion (Score:5, Insightful)
Nope ... it was overpriced.
The only thing that prevented the stock from going below the IPO price was MASSIVE underwriter support (i.e. the banks that got paid to do the IPO buying the stock in large volume whenever it hit the IPO price of $38).
Look at the price chart here:
http://finance.yahoo.com/echarts?s=FB+Interactive#symbol=fb;range=1d [yahoo.com]
See the flatline at $38 from 3:30-4:00pm? That's due to the underwriters buying the stock in massive volume providing support at $38. If you monitored the detailed stock quote during this time (as I did), you'd have seen that the bid volume, normally single or double digit lots spiked to a continuous 99999+ lots (i.e. 10,000,000+ shares) during this time - i.e. the underwriters were essentially buying unlimited volume of the stock at $38 (to artificially support it). From the trade volume during that final half hour, I reckon the underwriters bought well over 50M shares (10%+ of the 420M shares floated).
So... stumbled out of the gate is being kind. It really slithered out like a giant wet turd.
Re:It's stupid to compare to Facebook's profit (Score:2, Insightful)
FB has the potential to target ads to a degree that Google can't, it's just a much harder problem to tackle. But with so much more personal information at their disposal, the ceiling is higher. FB might also be able to monetize commercial web presence on their site. Currently, it's free for companies to setup a FB page, but with the value that even small businesses are seeing from that, it would be an easy sell to generate revenue.
If (and it's a huge if) FB can maintain its spot as the dominant social network, it will be very successful financially. But history shows that online communities are incredibly fickle and will jump to a better option when it's presented. AOL, Friendster, MySpace and many others have learned this less the hard way. The danger for FB is that they'll lose their dominant position and, if that happens, the stock will drop to pennies per share. That's why I'd never invest in them...there's definite upside, but the downside is a sheer cliff rather than a steady decline.
Re:Zuckerberg proves how smart he really is (Score:5, Insightful)
Others have mentioned the underwriter issue, but take a look at this article [latimes.com]. Basically, the underwriters of the IPO stepped in every time it looked like the stock might hit $38 in order to avoid it going negative. So they end up with more stock than they planned on, which they will be hoping to offload in the next few weeks. The idea being that if the stock tanked out of the gates it would shatter confidence and they would lose money, but if they can maintain even or positive valuation for a little while it will increase investor confidence and they will be able to offload these extra shares bit by bit. Basically perfectly legal manipulation of the stock price in an attempt to assuage investor concerns. The fact that the stock didn't really pop does seem to suggest that they didn't undervalue it (which has been a favorite game of underwriters in the past, as it puts more money in their pockets), but you can't really tell from the trading results whether it was overvalued because, at least for now, there are major banks protecting the stock price.
Personally I think the stock is rather overvalued (I'd say by about 2-3 times based on potential for growth; I just don't think there is that much headroom for user growth, and thus far they haven't been terribly good at monetizing their vast user base), but then I'm not a trader and my talent for picking stocks has yet to make me rich (or even a significant profit).
Re:It's stupid to compare to Facebook's profit (Score:3, Insightful)
That's an unfair comparison. People could see how Google would make money from day one - me included. There is so much uncertainty around Facebook that its a different ball-game. Here are a few obvious issues around Facebook
- Untested and very young CEO with questionable integrity
- Poor privacy record
- Pays a PR company to discredit competition (highly unethical)
- Product of questionable origins (highly suspect)
Everything about Facebook smells bad from day one. The obvious way up from here is to intrude on people's privacy even more - ie. to sell its loyal customer data to the highest bidder with even more sensitive information.
If you want to put your money into Facebook, go ahead. If it makes you a lot of money, then congratulations - but don't mortgage your house on it ... because its unfair for others to pay for your welfare... GM made the right move by pulling the plug on this crowd, I would too.
AC