Tuesday, 29 May 2012

The curious public reaction to Facebook IPO

You couldn't have missed the public fury over the Facebook IPO, over the last week, even if you not economically inclined !  Facebook was a darling before the IPO - great company, stratospheric valuations, etc etc, which this blogger has been heartily against. But now after the IPO , Facebook is a pariah, it botched up the IPO, lawsuits threatened, etc etc. This time this blogger is completely on the side of Facebook and totally flummoxed by the public reaction.

What is the main charge ?  Facebook's price did not shoot up 10 times after the IPO. Instead it has declined by some 16% or so, over the IPO price, in the first week. The company has committed sacrilege. Really ??

Who are the moaners and bleaters. The punters who bought in the IPO wanting to sell on the first day after listing and make a 5000% profit. Please tell me why the company has any obligations to these greedy leeches ? What economic activity have these speculators done (never mind that in this lot might be Oregon widows who didn't know what they were doing !)? Why should they make any profit at all ? Why should Facebook "ensure" that the stock rises manifold on the date of listing ? It can be argued that Facebook should actually be doing precisely the opposite. After all if the price shoots up after the IPO, the company is shortchanging the original investors who first invested in the company to the benefit of the sharks who want to make a whopping profit in one day. By that yardstick, Facebook has done precisely the right thing.

The second charge is that the IPO price was overvalued. Now do you need a MBA to tell you this ? Of course the company is overvalued like crazy. Everybody knows that. People chose to close their eyes and believe that in a stampede they would make a killing. They've now been trampled. Tough luck. 

The third charge, and a more serious one, is that Facebook let some analysts know that its latest quarter's numbers would be lower than expectations, but didn't inform everybody. This is what is triggering the threats of massive lawsuits.I don't know the facts behind this allegation, but I suspect this is a fig leaf behind which the punters are wanting to hide. As if their stampeding to buy Facebook shares had anything to do with numbers or logic or any sensible model of valuation based on earnings. Would they have behaved any differently if Facebook had said they would earn half of what they did ??

I have zero sympathy for those moaning today, I am actually delighted that they have lost their shirts and would be even more delighted if they lost their underwears too. The right course of action for them is to wait a year or two, and see if Facebook's performance doesn't lift the share price. Fat chance of that happening - this lot has the patience of an ectoplasm !

I am totally with Facebook on this one, even though I am not with them on anything else. That's why I am not updating my timeline !

24 comments:

Appu said...

Before i venture further, I am not such a big fan of Facebook. Indeed even felt glad that market cap is falling down ;)

I am surprised you havent turned your guns on the investment bankers who did this deal and the pricing.

There is also some talk,with the extra load of shares being sold, out of nowhere, they shorted the stock! Hence it is the banks that are actually driving the price down. Not to mention the technical glitches of NASDAQ which added a bit or two to fuel the negative sentiments.

At the same time, as mentioned here there is a possibility that keeping the price ceiling as high as possible, every one is hurt!

http://edition.cnn.com/2012/05/28/opinion/damodaran-facebook-ipo/index.html

sriram khe said...

As I expressed in this tweet more than a week ago, it is nothing but schadenfreude :)  BTW, I checked the share price before posting this comment--it is down to 29.48.  Getting better all the time :)

J said...

When I saw Facebook on the title of the post, I was expecting a post on the "royal" wedding and Priscilla Chan as a delayed Sunday post :) You disappoint your Sunday post fans :) Recently someone I know was lamenting their purchase of Facebook stock and I had to resist the urge to say "what were you thinking" - that would be like rubbing salt in their wound.

Deepa said...

//After all if the price shoots up after the IPO, the company is shortchanging the original investors who first invested in the company to the benefit of the sharks who want to make a whopping profit in one day. By that yardstick, Facebook has done precisely the right thing.//

I liked what you said above! I should actually put that up as my Facebook status.

Ramesh said...

@zeno - In this case, I don't think the investment bankers were at fault. They were hired to get the maximum possible price and that's what they did. If somebody shorted the stock, there's no difference to what everybody does on every others' stock. I have zero sympathy with the losers who moan.

@sriram - Ha ha. Have a heart :)

@J - You should have rubbed salt :)

@Deepa - Alas; I don't know how to look at a Facebook "status" :)

Appu said...

@ J here it is for you :)
http://www.ndtv.com/article/world/600-dollar-shoes-not-for-mrs-zuckerberg-216255

The losers and leechers are just gamblers who deserve to rot as you say! But what about the image and the PR giri where you slide down from the IPO of the decade to worst IPO of the decade.

Ravi Rajagopalan said...

Fully agree with these sentiments. I am sitting here in Istanbul where the the pre-occupation of a booming economy is building one more bridge across the Bosporus, adding more production lines to the Ford car factory, and building a new bike factory. Its wonderful to be here in a "real" economy. How far away this kerfuffle seems!

sriram khe said...

It fascinates me that the ones commenting here at Ramesh's blog, including me, of course, live in so many different parts of the world ... how cool! 

Reading the comment about Istanbul triggers my long-time dream to go there ... And now I really, really, want to go to Istanbul. No, Constantinople :)

gils said...

i knew why it fell...people found out u dont use facebook. thala use pannatha oru matterku ivlo kaasu wastenu decide panirupanga athaan :)

J said...

@ Appu(Zeno?) Thanks!

Ravi Rajagopalan said...

@sriram khe - No I don't live here - just on holiday. I used to visit Istanbul on business regularly and we have holidayed in Istanbul many years ago. This time we traveled through Anatolia - Kayseri, Goreme, Urgup, Mustafapasha, Kusadasi, Ephesus, Selcuk, Didyma, Priene, Bodrum...I like driving and we just bummed from place to place eating local food and staying in very nice odd-ball places with three kids in tow. I visited the Aya Sofia in 1998 and coming back here the magic is renewed. Turkey is the hope of the Islamic world. The Europeans of course are very foolish not to let them into the EU - but watching the Greeks (their traditional enemies) get their knickers into a twist now makes the Turks believe they were fortunate. Its a lovely place, great people and a cultural heritage that can be traced back to 3000 BC with the underground cities built by the Hittites. You must visit.

Ramesh said...

@Zeno - PR is much hyped balderdash. Take BP for example. Suffered horrible PR just a year ago. Does it matter an inch now ?? Public memory is unbelievably short.

@Ravi - Yeah - Turkey is doing relatively bitter these days. Lovely country indeed. Very pretty ladies :)

@sriram - Yeah : Honoured to have commenters from far and wide. The beauty of the internet.

@Gils - Ha Ha. Inimitable Gil logic :)

Hema said...

Ha ha..they are facing the book now!!

sriram khe said...

@Ravi ... drooling here reading about your travels ... have been dreaming of Turkey and Istanbul ever since I watched, as a kid, Peter Ustinov in Topkapi, at the local "Park Club" in Neyveli--the town that brings Ramesh and me together here. (wait a sec, more Neyveli people here?)

To add to my drool, I recently caught up with a few back issues of the New Yorker, and I read about the huge mound and the neolithic megaliths, in SE Turkey ... some day I shall go there, once I figure out where exactly the gold is in my backyard ... .
Enjoy it all the more for people like me also :)

Ramesh said...

@Hema - Ever the poet !

@sriram - Alas no other Neyveli folk here . Apparently Neyveli water and blogging don't go together !!

Shachi said...

@Ramesh - I have a close friend here who is from Neyveli...his name is Harish Reddy and is 51yrs old...do u happen to know him? If yes, I can connect you to him :)

Unknown said...

@Shachi @Ramesh
Perhaps this is Harish, the son of Dasaratharama Reddy? He had a brother who was also at our school.
I don't know any of them other than by their names ...
But, I am excited at the remarkably few degrees of separation here ... Neyveli rocks :)

Sandhya Sriram said...

now facebook consciously chose this new world right.

I sometimes feel completely lost in this new world.

A group of shareholders can just oust a CEO who worked for a company for more than three decades in Generali.

At the other end, we have seen so many people see their pension moneys vanish due to mismanaged companies

Once considere to be a simple way of raising funds and investing small money, but then it has got so complex, so entagled, this world doesnt belong to the ordinary man any more. he is insignificant, cant do anything anyways and better leave this world to the greater mortals who you have spoken about in this post.

Ramesh said...

@Unknown - Indeed it is he. Now I am scratching my head - more Neyveli folks around here ??

@Sandhya - Yes it is complex, but you are doing yourself a disservice. You are one among the few who can disentangle the threads, and who can always be counted on to do the right thing. More power to you.

Appu said...

whoa whoa not only FB helps in connecting people even an FB post helps in connecting people Mark Z jai ho :P :D

Boss,
Neyveli and blogging not going well. Hmm I hear the Neyveli Book fair is most important. Though it may not give good sales people say it helps to reach out to wider audience (more like knowledgeable chennai crowd :))

Ramesh said...

@Zeno - Ah well; I'll grant some small use of Facebook :)

Really - there's a book fair there ?? Well the town produces mostly studious types (like sriram !) with yours truly being the only exception who would rather play sports.

Vishal said...

Alas! sentiments rule the stock market and as good economics says, sentiments does not earn money necessarily. In some cases, not even sympathy... seems like one such case, this FB saga!

sriram khe said...

Hey, perhaps Ramesh was planning to share his "guest post" at my blog after I posted it ... In any case, here is Ramesh's take on some of the American political and election issues ...

Thanks for sending it my way, Ramesh

Ramesh said...

@Vishal - The most puzzling thing about markets is "sentiment". I suppose that is a nicer word for a herd of brainless buffaloes going in the same direction !!

@sriram - Thanks for posting it and referring to it here.

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