Facebook IPO

[Midpack]

I just don't get it (Facebook). I'm 61 and have no desire to use it or Twitter (nor do my 35 and 36 year old "kids"), and frankly I'm sick of all the "check us out on FB, follow us on Twitter, blah blah blah." I about puked last night when I turned on Deadliest Catch and they were posting tweets on the damn picture...as if the continuous network logos and banner ads on TV weren't bad enough. As for a stock completely predicated on advertising revenue, I cannot imagine that it is that powerful to warrant the projected returns. I've always thought that if everyone spent like I do, the economy would collapse, and I suspect most on this board behave (consumer wise) the same way I do. I have to think long and hard to tie any purchasing decisions I have made to advertising. Won't say I'm immune, but I'm a fan of generics and value purchasing. The FB hype reminds me so of the dot.com bust. When it comes to an IPO like FB I have to ask, "why would these billionaires and Wall Streeters offer me, the retail investor, a good price on something that is worth a whole lot more eventually?" Does that even make sense? Sorry for the rant.

I'm not "on" FB (only due to DW's privacy concerns), but I look at sites all the time there. Many companies are keeping their FB pages up to date better than their conventional websites.

I didn't think I was interested in Twitter either as I thought it was basically another form of texting for kids. I try to keep an open mind (and not be like my 90 YO parents who decide they don't like something without even trying it) so I tried it out and found it has other great uses, so I joined and I don't regret it. By following sites of interest to me (hobbies, magazines, newspapers, groups), I can keep up with about 40 favorites in one place - instead of having to check 40 different websites.

YMMV

 

[Hamlet]

I think this is what people are missing about Facebook. It's not all about selling advertising on the site itself.

Facebook has more information about more people than pretty much anyone but Google. They will at some point start selling that information to other people, and that will make them a lot of money.

How much? I have no idea, but I suspect that it will be more than people here appear to expect.

I'm not a shareholder, but if the price drops substantially I will become very interested. However, I will want to see a 10-K before I invest.

I guess FB helps advertisers figure out what consumers want. You think they'd be better at it by now...

 

[pb4uski]

If I were FB and the early investors and found that Morgan Stanley and the other i-banks were able to convince a bunch of [-]fools[/-] sophisticated investors to overpay for stock I was issuing and selling, I would think they did a great job and the IPO was very successful.

But all I read are reports about what a failure it is. The Street considers it a failure because it didn't get an early pop like most other IPOs that are commonly underpriced which shortchanges the issuer and any selling shareholders?

 

[Midpack]

On the today show this morning, Matt Lauer & Mike Taibbi reported an "oft quoted analyst" as saying "the real value of Facebook is about $7.50/share." But that's one analysts opinion...

Facebook stock at new low, losing billions - Video on TODAY.com

 

[audreyh1]

If I were FB and the early investors and found that Morgan Stanley and the other i-banks were able to convince a bunch of [-]fools[/-] sophisticated investors to overpay for stock I was issuing and selling, I would think they did a great job and the IPO was very successful.

But all I read are reports about what a failure it is. The Street considers it a failure because it didn't get an early pop like most other IPOs that are commonly underpriced which shortchanges the issuer and any selling shareholders?

Yep - IPOs are supposed to enrich Wall Street and the new shareholders at the expense of the insiders.

Wouldn't have touched the FB IPO with a ten foot pole, and not just because I don't care for their product at all. It seemed to me that the FB folks picked an optimum time to go public to enrich the founders, and the way the IPO was handled made it clear that that was exactly what happened - maximize price, maximize offering, maximize hype. They didn't need the to money to grow the business - only so the founders/insiders could cash in.

I don't generally buy IPOs anyway. Most times stock can be purchased post IPO at a better price. I've seen in time and time again since the 90s. Why people still believe they get something magical by buying into the IPO (unless they are just hoping for that first 1 or 2 day pop and quick turn of the stock), I just don't get.

 

[kcowan]

Used to be that you could buy IPO stock commission-free. Now at $7.95/trade, it is a non-issue. I still buy some bonds during IPO.

 

[clifp]

If I were FB and the early investors and found that Morgan Stanley and the other i-banks were able to convince a bunch of [-]fools[/-] sophisticated investors to overpay for stock I was issuing and selling, I would think they did a great job and the IPO was very successful.

But all I read are reports about what a failure it is. The Street considers it a failure because it didn't get an early pop like most other IPOs that are commonly underpriced which shortchanges the issuer and any selling shareholders?

I agree I think the FB IPO was a huge success to the founders and early investors of Facebook and for the company. They pretty clearly maximized profit for those people. The only thing that went wrong was analyst were downgrading forecast at the same time the IPO was going on and the little guys missed out hearing the news. This isn't a shocking revelation, IMO. Not even clear if the news had been released a couple of days early that would have made a big difference.

IPO behavior of the late 90s was a fluke, a really once in a generation or two, tulip mania. IPO should be priced so that stock trades near the IPO price and then follows the rest of the market in the short term and the companies fundamentals in the long term.

Personally, I much rather the money go to Facebook and early investor than to speculators and wall street insiders who get special allocation for IPOs.

I don't have a clue how to value Facebook it could be a $200 billion company or a $2 billion it all depends on how they monetize their user and do they get displaced by the "Next Big Thing"

 

[ChadR]

Many times "insiders" only sell part of their investment in an IPO. So it is still bad for all parties concerned if the price dips post IPO unless an insider is was lucky enough to fully exit at IPO and that rarely happens from my limited experience. Heck usually Insiders are locked up for a period of time post IPO.

 

[pb4uski]

Many times "insiders" only sell part of their investment in an IPO. So it is still bad for all parties concerned if the price dips post IPO unless an insider is was lucky enough to fully exit at IPO and that rarely happens from my limited experience. Heck usually Insiders are locked up for a period of time post IPO.

The notion that it is bad if the price dips post IPO doesn't make sense to me. The early investors has liquidated part of their holding and now has a ready market to liquidate remaining holdings later and a better way to guage the fair value of their holding.

The only reasons it can be perceived as bad is if the insider has an inflated view of what their shares are worth.

The reality is that all the insiders are sitting on outrageous unrealized gains at this point, just a bit lees outrageous that they might have been if they bought into the pre-IPO hype.

 

[Brat]

There are income tax reasons why it is better for the stock to go up post-IPO. If the insider was granted stock that was priced at the IPO they must pay taxes on that basis. At a minimum those stock holders must sell enough of that stock to pay state and federal income taxes.

 

[EvrClrx311]

There are income tax reasons why it is better for the stock to go up post-IPO. If the insider was granted stock that was priced at the IPO they must pay taxes on that basis. At a minimum those stock holders must sell enough of that stock to pay state and federal income taxes.

That's interesting... are there any rules in place to prevent someone from owing more than what the stocks are worth when they finally sell?

Example: What if someone exercised 1 million option shares at the price of $25 (thinking the $38 IPO price would hold) and within a week the price dropped to say $10 (extreme I know... but for the sake of this example)

That person would have owed approximately $12-15 million in taxes at the time of receiving the shares... but their stock is only worth $10 million total today. Would they only owe taxes on what they currently have... or would the have to come up with a lot more to cover the initial price?

 

[ChiliPepr]

That's interesting... are there any rules in place to prevent someone from owing more than what the stocks are worth when they finally sell?

Example: What if someone exercised 1 million option shares at the price of $25 (thinking the $38 IPO price would hold) and within a week the price dropped to say $10 (extreme I know... but for the sake of this example)

That person would have owed approximately $12-15 million in taxes at the time of receiving the shares... but their stock is only worth $10 million total today. Would they only owe taxes on what they currently have... or would the have to come up with a lot more to cover the initial price?

Nope, that is exactly what happened to a lot of people in the .com bust. People received options at $25, paid taxes on the $25 (approx $8.33/share), paid their taxes out of pocket and not from selling shares and then had the stock drop to 25 cents... some lost a whole lot of money.

I have always recommended to people in this type of situation that they should sell enough of their holdings to cover the taxes... but some do not listen.

 

[Brat]

ChiliPepr is spot on. Daughter watched it happen when she was a junior at EY.

I think many entrepreneurs would love to go public, and a few should, but the better route for most is to be bought for $ by another company. 3Par is my best example as they were in a bidding war between HP and Dell.

 

[MichaelB]

The $100 Billion Oxymoron

William Bernstein has shared his opinion of the Facebook IPO. Read it here. I'd include a snippet but the title says it all

The $100 Billion Oxymoron

 

[Midpack]

William Bernstein has shared his opinion of the Facebook IPO. Read it here.

Thanks. I enjoyed the read, as always with Dr Bernstein...another snippet.

How many Facebook purchasers do you think have exerted the considerable effort of estimating Facebook's future advertising revenues? Using the word "investor" to describe these folks is akin to calling Tony Soprano a Catholic. Joe Nocera got closest to the truth when he opined, "Virtually everyone who bought Facebook on that first day was making a one-day, get-rich-quick calculation. It didn't work out. Too bad." (To which I would add this silver lining: That the speculating public will still blindly overpay for growth and glamour strongly suggests that the value premium is yet alive and well.)

However acute the observations of Graham and Nocera may be, my go-to for general investment wisdom is a relatively unknown writer named Fred Schwed, who in 1940 wrote his only investment book, Where Are the Customers' Yachts? And indeed, on the subject of "investor" anger over the Facebook debacle, he does not disappoint:

The burnt customer certainly prefers to believe that he has been robbed rather than that he has been a fool on the advice of fools.

"Fool"? Most likely. "Investor"? Definitely not.

 

[BigNick]

Never mind $20 billion wiped off the shares since IPO. The real issue is whether MZ should have left a $7 tip at a restaurant in Rome on his honeymoon.

(BTW: Rome, for your honeymoon? When you could go anywhere? Srsly? I mean, it's a nice city and all, but still.)

 

[Spanky]

It was nice that we did not have to leave a tip when we were in Italy last year. We should adopt the same system that paying servers and restaurant workers decent wages in such a way that tips are not needed.

 

[explanade]

Most Italian restaurants have cover and service charges added in.

The sniping about their wedding not being lavish enough or the ring not having a big enough diamond is ridiculous.

 

[MichaelB]

Update on Facebook in WSJ with an interesting graphic Facebook Investors Cash Out - WSJ.com

 

[SRyan]

Even at $20 a share, FaceBook is still standing at a $43B market cap; while in comparison, Ford Motor Company’s market cap is $37B and CSX’s market cap is $24B. How easy will FaceBook be to copy in the near future (with very little start-up capital)? > Look at MySpace-anyone remember those guys?

 

[Nords]

Look at MySpace-anyone remember those guys?

I also remember when analysts said that Google would never survive on advertising.

Facebook will figure it out, especially now that they can attract some real engineering talent.

 

[lynxville]

face book

What would be a good price to buy fb?

 

[NW-Bound]

I have not followed FB nor been interested in its IPO, but did a quick look to try to answer the above question.

I saw that analyst's estimate of FB's earnings is $0.13/share in 2012, increasing to $0.43/share in 2013. Let's be generous and use the higher predicted forward earning, if we value FB the same as S&P500 at a P/E ratio of 14, then the fair price would be $6.

Obviously, companies on an exponential growth path would be awarded a higher P/E, while dying companies would be valued at a much less ratio. How does one classify FB? I dunno.

 

[rbmrtn]

I was thinking around $5. I would have shorted it if the shares were available. They don't really seem to have a business, more like just kids playing online with their friends.

Seems like they need to start charging for FB accounts the way your email provider or web hosting service does. I think the online advertising model for revenue has it's limits, I know I never pay any attention them or click on them. I use something like simple AdBlock to rid of them...

Adblock for Internet Explorer version IE7, IE8, IE9 and IE10 – Simple Adblock

 

[Bestwifeever]

Facebook seems to have wedged itself into the business world as using social media becomes more prevalent (almost every ad I see has the little Facebook symbol on it). I think it might mature into becoming a business mainstay as personal users of social media on the other hand leave it to glom onto the next big things as they come along, from Twitter to Houzz to Pinterest and Instagram, and as social media from a personal standpoint splinters into special interest. So I wouldn't bet Facebook out yet.