Facebook, Facebook, Facebook

Is the world so boring a place that unless we can beat a story stock to death, there is nothing else to report?  Have we forgotten about the need to create jobs in the private sector? 

First it was Apple; then it was JP Morgan; and now it’s Facebook.  Thankfully, the IPO is over, Mark Zuckerberg is now worth $19B and the markets have created thousands of new paper millionaires.  It also means that in a few weeks, the buzz about Facebook should die down. 

For full disclosure, I am not an IPO investor and never have been.  I think there is too much risk and too much volatility.  For every huge success, there are dozens, hundreds or even thousands of busts.  Sure, folks can point to Apple, Microsoft and Google, but in each case, by waiting and possibly paying a higher price, you could have reduced risk and volatility, and more importantly, gave yourself better odds at winning by making sure the company wasn’t the latest flash in the pan, like At, Krispy Kreme and Boston Chicken.

All huge IPOs seem like can’t misses.  Is Facebook a good investment?  A good company?  Over the long-term, I have no idea at this point.  Time will tell.  But what we do know in the short-term is that insiders sold an awful lot of stock at a rich valuation that was increased over the past month with the likelihood of much more over the coming months and years.  The word “greed” enters into my mind!

Right now, Facebook dominates the social media space.  Zuckerberg built a monster as a private company.  That has all changed.  He and the company will now be in the public spotlight like no freshly public company has ever been. The pressure from Wall Street, the media and investors is going to be enormous.  

Here is an article I was quoted in over the weekend about the IPO.

Fast forward a few days to May 21, we now see that the IPO is basically a bust in my opinion.  The underwriters, led by Morgan Stanley, had to commit millions of dollars of their own money on Friday to support the IPO price of $38.  The NASDAQ completely bungled the most high profile IPO since Google, if not ever, with system problems on Friday.  And today, Monday, with a very strong technology market, Facebook closed down more than 10%.  I imagine investors are shellshocked, dumdfounded and pretty angry overall.  Anything but this was expected.  To have the stock close below the offering price at all, let alone on day two is beyond unbelievable!

How happy are the institutions who bought at $38 on Friday?  Given the litigous nature of our country, I have a feeling that we will be seeing some class action lawsuits on the way.

As always, Caveat Emptor!


Paul Schatz, President, Heritage Capital