Mark Zuckerberg's Big Facebook Mistake 418
Hugh Pickens writes "Nathan Vardi writes in Forbes that in the last two months, Mark Zuckerberg has had a rude introduction to the capital markets. With Facebook's stock in free-fall, down more than 40% from its IPO price, Zuckerberg has a big problem. 'Zuckerberg did not want to deal with the pressures of being a public company. Like many entrepreneurs these days he viewed the capital markets with suspicion,' writes Vardi. 'So Zuckerberg made a fateful decision, he decided to keep Facebook a privately-held company for much longer than other success stories like Google or Amazon.' But waiting eight years to conduct an IPO has turned out to be an impossible problem to manage. The bankers at Morgan Stanley applied all the lessons of the last 15 years and priced the IPO at $38, which was very aggressive, in an attempt to avoid leaving any money on the table and the embarrassment that a huge IPO pop would represent. With such a big valuation at IPO time, Facebook had to show some results. But the numbers that Facebook announced in its first quarterly earnings report were underwhelming and the trading hordes drove Facebook's stock down by 15% in Friday morning trading. Now the early institutional investors are heading for the exits and it's hard to imagine morale at Facebook won't take a hit that correlates with the loss in value of the shares belonging to the employees. 'The lesson of the Facebook fiasco for Silicon Valley is clear. Start-up entrepreneurs cannot evade the discipline of the capital markets any more than can the prime ministers of Spain and Italy.'"
Wait, what? (Score:5, Insightful)
So the problem is Zuckerberg's alone to bear? How about the responsibility of the Banks in price fixing the IPO? How about the attempted over inflation of the stock by those same banks on opening day? How about the SEC and their lack of (either ability or willingness) enforcing their own rules and regulations?
I'm not a fan of Facebook by any means. They have done numerous shitty things and continue to do shitty things. The Capitalist Economy has mechanisms for dealing with those practices. To blame the financial fiasco on one person is simply ludicrous!
Re:Reality bites (Score:5, Insightful)
I think Zuckerberg was right to stay out of a public offering, and he should have.
There are too many "yes" men and shills in the public offering arena, patting you on the back while drawing a blade.
Stock markets... pppfftttt, more like legalized gambling.
Sorry, what? (Score:5, Insightful)
Does anyone else find that logical jump a little odd?
Billionaire. (Score:5, Insightful)
Zuckerberg is a billionaire. He has no problems worth worrying about. If he doesn't like what he's doing, he can quit and buy a tropical island.
Giving SHAREHOLDERS? (Score:5, Insightful)
Why should the shareholders get any compensation?
I don't have any Facebook stock because I AM NOT AN IDIOT.
Anyone with a single brain cell, indeed even most amoebas stayed far away from the Facebook IPO.
The problem was in initial setup conditions and if you were too stupid to figure out the initial price was wrong beyond belief you deserve the loss and pain that resulted.
That is the stock market.
People on Slashdot talk a big game about how they believe in survival of the fittest and evolution but then don't seem to want the game to apply to them...
Sure we can. (Score:5, Insightful)
Sure we can, all we have do to is continue to hold the company privately.
Re:Reality bites (Score:5, Insightful)
Quite.
This is not Zuckerberg's fiasco. It's the underwritter's fiasco. Zuckerberg in fact made out like a bandit here.
Article is completely misguided (Score:5, Insightful)
It was a failed IPO for speculators, it was an absolutely fantastic IPO for Facebook. The 2 parties are at odds with each other: the company that is having an IPO wants to sell it's share for a high price, to get as big of a cash infusion as possible, while the speculators want the IPO price to be as low as possible, so when there is a quick "pop" after the IPO, the speculators get rich quickly.
Mark Zuckerberg and Facebook got about as good of a deal as they could've ever dreamed of and with Mark still retaining control over 50% of the shares, he doesn't have to give a damn about the rest of the shareholders even if every single one of them bunched up together to make demands.
Re:Giving SHAREHOLDERS? (Score:4, Insightful)
>>>People [in banks and megacorps] talk a big game about how they believe in survival of the fittest and evolution but then don't seem to want the game to apply to them...
That's why they beg Congress for bailouts. "Private profits and socialized losses" to quote Peter Schiff.
Problem? What problem? (Score:5, Insightful)
If the company hasn't lived up to the expectations of the suckers who bought it, well: tough - that's capitalism for you.
Comment removed (Score:5, Insightful)
Re:Sorry, what? (Score:5, Insightful)
The lesson of the Facebook fiasco for Silicon Valley is clear. Start-up entrepreneurs cannot evade the discipline of the capital markets
WTF? That is the biggest load of bullshit I've heard since... well, about a week. Facebook could simply choose not to go public. EASY AS THAT.
Seriously, any time you hear "The lesson is clear", it's probably isn't. It's one of those terms that salesman use to pretend they not full of lies an villainy.
It's not investing. It's speculation. (Score:2, Insightful)
That's okay, that's how markets work. If you thought it was a good buy then you were wrong and you lost some money, that's the nature of this type of investment. You may or may not get it back depending on how long you hold it and how well Facebook does.
See that's the problem: folks have confused investing with speculating.
Investing is putting up capital with the hopes of an increase in the underlying asset's value and a cash flow. Such as buying a stock that pays a good dividend.
Buying something with no immediate income with the hope of an increase in value as the sole method of showing a return is speculation.
It's a big difference that's no longer stressed anymore.
We've become a society of speculators. Part of that was Silicon Valley's doing. In the beginning, some highly profitable companies came to the conclusion that instead of paying dividends they would reatian the earnings and pump the money back into operations in the form of R&D, plant and equipment, and other things that would make a hell of a lot more money than what an investor could do on their own. And for a group of companies is was the right thing to do. And eventually, as the companies matured, they started paying dividends. Microsoft and Apple are examples of contemporary companies following that plan.
But these days what's being done is false investing. Building up obscene cash balances or buying back stock which inflates the market price of the stock - both situations are a sign of management's complete incompetence on what to do with the earning of the company and is a sign of decline in the near term.
Of course, Wall Street wanting to paint all of their issues as potential growth stocks Facebook was marketed as this money machine that was destined to increase their earning power. I didn't see it that way and neither did many others. Unfortunately, I think many folks who bought the IPO subscribed to the age old fallacy of the greater fool and the past.
Back iin the 90s, if you bought into an IPO - no matter how shitty the company - you were going to make money because of everyone bidding the price up. Those days are long gone and some folks who participated in the IPO, IMHO, were hoping to buy and watch the FB hype boost their stock for a quick and easy profit. Again - speculation or gambling.
They Priced it Exactly Right (Score:5, Insightful)
I disagree. The point of an IPO is to get money for the company doing the offering, not to make institutional investors rich. The stock was priced perfectly to extract the most money out of investors and give it to Facebook. Had they priced it at $25 and it had popped to $50, Facebook would have had less money at the end of the day.
Could say something negative and smart ass (Score:3, Insightful)
But he is and will always be far richer then all of us so in this case I will shut the fuck up. I would rather make the mistakes he made then the successes I have made in life.
Not Too High (Score:5, Insightful)
They priced it too high.
How can you possibly say it was priced too high? If all of the shares Facebook was selling were bought by someone at $38, then that was the correct price. If they set it at $25 then the price would still be exactly where it is today but Zuckerberg and his friends would have made a lot less money.
The price the stock started at was set to make the current stakeholders the most money possible, not to help make early investors the most money possible.
They're just sore losers (Score:5, Insightful)
The Forbes bankster types are just sore because they got played. Worse, they got played by a geek – someone they underestimated because he wasn't wearing a $5,000 business suit, but who proved by his handling of the IPO that he was smarter than all of them put together.
Zuckerberg already cashed out to the tune of a billion dollars. Why should he care that a bunch of arrogant bankers lost money on the stock? Not his problem. He still has a controlling interest in the company [slate.com] thanks to the Class B shares he retained, so the other shareholders can't even force him out.
Zuckerberg beat Wall Street at their own game, and they can't stand it.
Re:Reality bites (Score:5, Insightful)
I think Zuckerberg was right to stay out of a public offering, and he should have.
Tell that to the hundreds perhaps small thousands of employees who had been receiving stock as part of their compensation packages. The reason you have to go public over something like 500 shareholders is that they are entitled to a say in the business, because it's their money, and their business at that point.
Facebook needs something big to point to and say 'this is how we're going to make money', that, believe it or not, does not actually have to have anything to do with facebook the website and privacy invasion service. Now they are able to make money, 300 million dollars in profit in a quarter (minus stock compensation for employees which pushed them on paper into the negative), for a company with ~4000 employees is pretty good, but they aren't worth 100 billion dollars like that. So either they need something they can legally sell, or they need to expect to lose even more of their valuation.
Re:Wait, what? (Score:5, Insightful)
I don't mean to sound condescending, but did you research the history of Facebook before you make uninformed comments? Zuckerberg was very savvy in how he structured the IPO. He kept much more control then would normally be given a public traded company. In essence, he negotiated a position where he was in charge of Facebook's fate. So yes, it is his problem and not those of the banks and investors.
Everyone seems to be ignore the big Gorilla in the room. The issue isn't the management of the IPO and capital market expectation. It is the distrust that Zuckerberg built around Facebook. There are many users, but few who are interested in opening up their pocketbooks and spend via Facebook's various marketplaces. We buy from Amazon and EBay because then garnered our trust. Facebook scared us away with their missteps over their privacy policy. Whether or not it is warranted or fair, that is the current perception. To quote my ex and close friend, "perception IS reality."
Zuckerberg has to navigate his way out of this mess. He is a smart and savvy and that will go a long way.
Re:Reality bites (Score:5, Insightful)
If facebook.com were to vanish from the DNS tomorrow, my girlfriend would be mildly annoyed for about 10 minutes.
If google.com were to vanish tomorrow, it would be a national emergency second only to an accidental nuclear attack.
Google is a de facto public utility. Facebook is a toy.
Re:Not Too High (Score:5, Insightful)
Remind me - how it is that early investors are not shareholders?
Easy! There are 3 major groups of investors in the Facebook IPO fiasco.
1) the actual employee shareholders - those that have a day-to-day stake in seeing Facebook succeed
2) the gamblers / day traders who were betting on riding the initial pop of the Facebook IPO to a quick short-term turnaround profit (this group expanded quite a bit as a lot of casual investors got caught up in the hype)
3) long-term investors who saw this coming but are betting on a positive outlook on Facebook's long-term financial health
Five years from now, as long as Facebook doesn't tank or pull a Myspace, there will only be one group out of these three that will still be pissed off at the Facebook offering. Why are the #2 group (the early investors) not true shareholders? Because they're really nothing but speculating middlemen. They genuinely have no stake in how the company performs or any other metric for that matter, as long as the price per share on their holding goes up over the specified period of time that they want. "Facebook" just happens to be the name on the black box that they put up money for that they hoped would turn into a big payday.
Re:Giving SHAREHOLDERS? (Score:4, Insightful)
All that you say would be righteous except for one thing: cheating.
Morgan Stanley used selective disclosure [businessinsider.com]. "Privileged clients" were informed that Facebook's revenue would not meet expectations. The rest of us were kept in the dark.
I didn't stay away from Facebook only because it was overvalued and overhyped. I stayed far, far away because I was sure there'd be fraud. These days, small investors maybe shouldn't be in the stock market at all. You do your homework, determine what stocks are good values based on the fundamentals, and then all that goes out the window when management swindles the investors through omission and with fat pay packages and consulting fees to buddies that come straight off the stock's value through options and the like. The markets have yet to earn back the credibility they lost over the subprime mortgage fiasco.
Re:Reality bites (Score:4, Insightful)
bullshit. If google disappears, people will just type bing.com and go on with their day.
Re:Sorry, what? (Score:2, Insightful)
[posting AC cuz I modded]
Facebook could simply choose not to go public. EASY AS THAT.
Not so easy because:
a) All those outside investors expect to cash out at some point
b) SEC has a 500 shareholder limit before being required to go public
Large successful privately held companies usually get that way slowly and in an organic-growth fueled fashion (does not include holding companies that buy/sell companies or take public ones private).