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.'"
Reality bites (Score:5, Interesting)
Now the suits will start flying, and filing suits.
Did I get FP? Golly.
The sad thing is... (Score:5, Interesting)
The sad part is that Facebook IS capable of making money, just not gazillions of dollars worth. I've been wondering all along HOW Facebook was going to justify valuation. I guess we have the answer now -- it can't.
Maybe i dont get the stock market. (Score:5, Interesting)
How does the share price falling hurt Facebook? They sold the shaes at the IPO price so they already got the money. If they want more money in the future they issue more shares... Basically Facebook just got shitloads of money in exchange for a marginal loss of control. How are they losing out?
"discipline" (Score:5, Interesting)
"....can't escape the discipline of the capital markets..."
Discipline.
That's a funny word to use with a market that:
- turns trades of tens of millions of shares in literally seconds
- acts like a flock of frightened sheep at the slightest whiff of trouble
- punishes companies who accept short-term sacrifices in favor of long-term growth/gains.
Our company "went public" and I am hard-pressed to understand who - other than the execs, who get fat options and big share-piles - benefits?
The company CERTAINLY doesn't.
Where previously you had a private firm whose only real measure was year-on-year viability as a company, now we have a giant firm whose sole strategic goal seems to be "hit the monthly numbers". Foolishness, chicanery, and outright lying seem to all be acceptable tactics, and the business now has a 30-day outlook, instead of the previous generation(s) of CEOs who looked at what it would take to develop markets and commercial potentials in decade-long or even (for a family company) generational-length timelines.
Re:Wait, what? (Score:4, Interesting)
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!
Well he is the captain of the ship... Unless you have reason to believe he was substantially mislead by one of his employees or paid advisors, then yes that company is his to make or break. And right now it is breaking under the weight of a valuation that was so untenable as to be obvious to anyone but the most over-optimistic of investment bankers. He should have known better and didnt. Just think of what else he should know about running a company but doesn't, and extrapolate the probability of his success out. He should have sold his idea to those Harvard dickwads and walked away, at least they have a degree in screwing up businesses, instead of just winging it.
Re:Reality bites (Score:2, Interesting)
Stock markets... pppfftttt, more like legalized gambling.
Hey now, let's not forget insurance - legalized and occasionally MANDATORY gambling. Against yourself.
Translation (Score:4, Interesting)
"We believed the hype and got suckered into thinking that Facebook was worth more than it actually was. That must be Mark Zuckerberg's problem, because it can't possibly be *my* problem."
"Discipline of the capital markets" (Score:4, Interesting)
What is the discipline of the capital markets? At the end of 1999, Warren Buffett, who had been investing successfully for four decades, was being lambasted for not buying dot-coms and having as good a year as some other companies. Of course, this all went to nothing a few months later. He is known for being out-of-step with the markets, focusing on the long term, not going with the newest trend, not splitting his stock. As he has been so successful over four decades, he can get away with it.
So what companies have been under market discipline? In 2001 the #5 company on the Fortune 500, Enron, was shown to be a complete fraud, top to bottom. Countrywide Financial and Washington Mutual made subprime loans to people who would never be able to pay them back, in a manner that encouraged this (no money down, monthly loan payment rockets up after a year or two).
Other than the markets wanting to have gotten a piece of Facebook earlier, I don't really see any indication of what would have been differently if it was under "market discipline". If overeager suckers wanted to overpay for Facebook initially, it's a bonus for Facebook, and a loss for the market buyers undisciplined enough to know what a stock is worth.
If you watch the documentary "Born Rich", you realize there these 1%ers who inherit there money, these heirs who control almost all of the capital - they need things to parasite off of. There's always a massive of shortage of viable businesses for them to glom off of. Facebook is private and they whine about how they can't stick their snouts in the trough, and suck off of the people actually working and building businesses. Microsoft, Google, Facebook - most of the successful founders know to put off the IPO, because it's only a way for the 1% parasites to grab a majority stake of the company, and be parasites off of those doing the work. That's why founders postpone it so long.
Perhaps too high (Score:5, Interesting)
Well, there are at least indications -- and several lawsuits stemming from those indications -- that the only reason they were able to sell shares to the first-in IPO buyers at the price the IPO was set at was because Facebook and the IPO underwriters illegally withheld material information (particularly, revenue projections that were substantially lower than those filed in earlier required disclosures) that they were required to disclose under federal securities laws.
Those indication tend to support the conclusion that the price was too high.