Mark Cuban Blames Himself For Losing Money On Facebook IPO

McGruber writes "In a blog entry, American business magnate Mark Cuban explained who he blames for his losing money in Facebook stock: 'I bought and sold FB shares as a TRADE, not an investment. I lost money. When the stock didn't bounce as I thought/hoped it would, I realized I was wrong and got out. It wasn't the fault of the FB CFO that I lost money. It was my fault. I know that no one sells me shares of stock because they expect the price of the stock to go up. So someone saw me coming and they sold me the stock. That is the way the stock market works. When you sit at the trading terminal you look for the sucker. When you don't see one, it's you. In this case it was me.'"

Reminds me of "Rounders"

[notdotcom.com]

I'm sure that it isn't the first time that this quote, or a variation has been uttered, but Mark's quote sounds an awful lot like the opening scenes of "Rounders"

Mike McDermott: "Listen, here's the thing. If you can't spot the sucker in the first half hour at the table, then you ARE the sucker."

(Thank you, IMDB)

The bounce is the problem

[hawguy]

When the stock didn't bounce as I thought/hoped it would, I realized I was wrong and got out

The bounce is the problem with the IPO market - if the stock was priced correctly, there should be no bounce (and no crash either). If the stock bounces, it means the company left money on the table that should be in their pockets. If the stock crashes, then it means that investors lost money that never should have gone to the company.

An IPO auction [marketwatch.com] would be more fair, that way everyone who wants to buy shares can get some if they are willing to pay the auction price. With prorata distribution they may not get as many as they wanted (and they may try to game the system by asking for more than they wanted), but you don't need to have special ties with the company to get IPO shares at the opening price.

Insightful

[Kupfernigk]

I tend to agree. I would amplify one of your remarks, though: Internet advertising is in any case a race to the bottom. Advertising in our local dead-tree newspaper is now quite expensive. Why? Because although the circulation has shrunk, it has shrunk to people who (a) can read, (b) are prepared to pay money and (c) are likely to be older and, by implication, richer. It's the same process by which real targeted advertising is very expensive in terms of cost per mail shot, but for high value goods it is cheaper per sale than anything else.

So: If I had to pay for Facebook (as I pay for my Dropbox account) how much would it be worth to me? Well, to me it's worthless and I don't use it. Currently the UK paid-for nearest equivalent is BlackBerry services which cost around $5/month. But that includes an internet allowance, so the incremental cost is about $2/month. If 800 million users were prepared to pay $24 a year, that would come out to around $20 billion a year in revenue, maximum. Most people are unlikely to be prepared to pay that much. My guess is that realistically on present numbers that puts a limit on Facebook of about $10 billion, which suggests that it has nowhere to go except flat or down.

Re:The bounce is the problem

[iluvcapra]

The bounce is the problem with the IPO market - if the stock was priced correctly, there should be no bounce (and no crash either).

"Correct" is a matter of interpretation. Underpricing the IPO is one of many clever ways of compensating angel/venture capital, stock-compensated employees, and the investment bank in a manner that doesn't have to be costed on an income statement and will be taxed at favorable capital gains rates.

Re:FB shares

[tukang]

And Amazon has had a PE of over 100 for a long time and has more than doubled in the past 2 years. Its current PE is 315! My point is that making a trading decision is not as simple as looking at the PE.

Cynical view of the stock market

[istartedi]

His view of the stock market is cynical. The guy selling you stock might really be taking a vacation. He might be a 'boomer selling down his IRA to make ends meet.

Cuban sounds like yet another Internet mind-reader in this piece.

As for FB, I smelled trouble before it even went IPO. It boggled my mind to think anybody would have an interest in it. At 44 though, I forget that when I was new to investing I was avidly interested in Netscape.

Cuban should have been able to see this a mile away. It was held private for so long. A PE of 100 is fine if there's room for growth, but FB is already claiming a billion users in a world with single-digit billions. Any additional monetization degrades the experience and reduces that count, perhaps dramaticly. The site has some value, but HTF could I know? The only winning move is not to play.

Re:FB shares

[vakuona]

Amazon is different. Amazon is essentially making a land grab and has huge revenues. If you are in Amazon's position, you build revenues first, then later focus on profitability. It also helps that this strategy also demolishes your competitors.

Facebook on the other hand, is not seeing revenue growth anywhere near what it needs to be to justify its valuation. It is finding it harder to monetize its user base. Amazon is already the world's largest online retailer, with revenues growing faster than Facebook's by some accounts.

P/E is not everything, but an investor can make a reasonable bet that Amazon's P/E will come down without the share price going down.

Re:Facebook could charge $1 a month

[Anonymous Coward]

People pay to use Dropbox why not facebook?

Because people get a useful service out of Dropbox.

*obvious answer rimshot*

Remarkable candor

[jcbarlow]

"That is the way the stock market works. When you sit at the trading terminal you look for the sucker. "

So... someone who should know finally admits, in public, that stock trading (as opposed to real investing) is nothing more than a con game.

We have con-men running our banking system.