Slashdot Mirror
Mark Zuckerberg's Big Facebook Mistake
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.'"
Now the suits will start flying, and filing suits.
Did I get FP? Golly.
It's easier to be a result of the past, but more fun to be a cause of the future! http://www.spacefinancegroup.com/
Wall Street greed strikes again. I'm just glad that I wasn't stupid enough to invest. My off-the-cuff valuation would have been somewhere around $5/share.
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!
-The wise argue that there are few absolutes, the fool argues that there are no probabilities.
Does anyone else find that logical jump a little odd?
Everything is better with chainsaws.
Hahahahahahahahahaha oh. You were serious. Right after saying:
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.
That sounds like a huge amount of discipline.
Zuckerberg is a billionaire. He has no problems worth worrying about. If he doesn't like what he's doing, he can quit and buy a tropical island.
Give me Classic Slashdot or give me death!
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.
Proverbs 21:19
Lesson 2: Investors are so stupid they still believe banks after the toxic mortgages fiasco in which they were lied to morning and night.
Lesson 3: Investors are so stupid they believe a fashion business in a volatile industry is worth sackloads of money.
Lesson 4: Nobody ever missed a bonus through screwing investors.
Yup, looks like they applied all the lessons.
From scarped cliff or quarried stone she cries "A thousand types are gone, I care for nothing, no not one."
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?
In Soviet Russia meme tires of you!
"....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.
-Styopa
Yet another crippling bombshell hit the already beleaguered Facebook community today when Slashdot (who heard it from Hugh Pickens, who heard it from Nathan Vardi, who heard it at Forbes, which is a sensational money magazine) announced that Facebook is dying. The rate on superpokes is plummeting, and as for Farmville cows, you can't even _give_ them away...
Why should the shareholders get any compensation?
I don't have any Facebook stock because I AM NOT AN IDIOT.
Anyone with a single brain cell, indeed even most amoebas stayed far away from the Facebook IPO.
The problem was in initial setup conditions and if you were too stupid to figure out the initial price was wrong beyond belief you deserve the loss and pain that resulted.
That is the stock market.
People on Slashdot talk a big game about how they believe in survival of the fittest and evolution but then don't seem to want the game to apply to them...
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Sure we can, all we have do to is continue to hold the company privately.
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.
That's not how it works: FB sold its stock at $38 to the underwriters (the banks), who assume the market risk and sell the stock on the market. It's in the underwriters interests to pay the company a low amount, and see the valuation rise in the market. Companies want a higher valuation, and a jump in the stock price does NOT profit them. When the valuation was raised to $38 at the last minute, it was good for FB and bad for the banks.
I can only assume this fundamental aspect of IPOs is ignored because it doesn't make for a good story.
http://en.wikipedia.org/wiki/Initial_public_offering#Pricing_of_IPO
tomorrow who's gonna fuss
It was a failed IPO for speculators, it was an absolutely fantastic IPO for Facebook. The 2 parties are at odds with each other: the company that is having an IPO wants to sell it's share for a high price, to get as big of a cash infusion as possible, while the speculators want the IPO price to be as low as possible, so when there is a quick "pop" after the IPO, the speculators get rich quickly.
Mark Zuckerberg and Facebook got about as good of a deal as they could've ever dreamed of and with Mark still retaining control over 50% of the shares, he doesn't have to give a damn about the rest of the shareholders even if every single one of them bunched up together to make demands.
Where, exactly, in the whole farce of the Facebook IPO is the 'discipline' of the capital markets?
We saw the Respectable Institution fuck up the offering price, we saw the assorted insider shenanigans, we saw the hyping and pumping of the noise-trader losers upon which the more sophisticated feed, we saw the following price drop when the hot air started to leak out...
I'm just not seeing the 'discipline' here
Frankly, were it not for the observable fact that real investment banks and NASDAQ and whatnot where involved, I could have been convinced that the whole thing had been cooked up as some sort of elaborate marxist performance art piece...
Start-up entrepreneurs cannot evade the discipline of the capital markets any more than can the prime ministers of Spain and Italy.'"
But Wall Street can. That was whole point of suspending mark-to-market. They didn't want to have to price their worthless or near-worthless securities at market values. Thus they got the SEC to suspend the time-honored and financially sound principle of valuing assets at what the market is willing to pay for those assets.
Further, Wall Street got the taxpayers to foot the bill for their incompetence AND got to use that money to give themselves bonuses for the great job they were doing.
While Zuckerberg can't evade market discipline, there are those who can, have and will continue to do so.
We will bankrupt ourselves in the vain search for absolute security. -- Dwight D. Eisenhower
was not selling 100% of his stock in the IPO. Everyone (with a brain) knew it was overvalued, its another Myspace, and he only made enough to make him a billionaire. He should have sold everything to those sheep that bought the stock, and walked away counting his money instead of staying on a sinking ship.
Start-up entrepreneurs cannot evade the discipline of the capital markets any more than can the prime ministers of Spain and Italy.'
Sure they can. They can maintain their own equity and grow the company with cash. You only have to deal with the capital markets if you get greedy, in which case, you get what you deserve.
I don't respond to AC's.
"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."
I am officially gone from
If the company hasn't lived up to the expectations of the suckers who bought it, well: tough - that's capitalism for you.
politicians are like babies' nappies: they should both be changed regularly and for the same reasons
That's okay, that's how markets work. If you thought it was a good buy then you were wrong and you lost some money, that's the nature of this type of investment. You may or may not get it back depending on how long you hold it and how well Facebook does.
See that's the problem: folks have confused investing with speculating.
Investing is putting up capital with the hopes of an increase in the underlying asset's value and a cash flow. Such as buying a stock that pays a good dividend.
Buying something with no immediate income with the hope of an increase in value as the sole method of showing a return is speculation.
It's a big difference that's no longer stressed anymore.
We've become a society of speculators. Part of that was Silicon Valley's doing. In the beginning, some highly profitable companies came to the conclusion that instead of paying dividends they would reatian the earnings and pump the money back into operations in the form of R&D, plant and equipment, and other things that would make a hell of a lot more money than what an investor could do on their own. And for a group of companies is was the right thing to do. And eventually, as the companies matured, they started paying dividends. Microsoft and Apple are examples of contemporary companies following that plan.
But these days what's being done is false investing. Building up obscene cash balances or buying back stock which inflates the market price of the stock - both situations are a sign of management's complete incompetence on what to do with the earning of the company and is a sign of decline in the near term.
Of course, Wall Street wanting to paint all of their issues as potential growth stocks Facebook was marketed as this money machine that was destined to increase their earning power. I didn't see it that way and neither did many others. Unfortunately, I think many folks who bought the IPO subscribed to the age old fallacy of the greater fool and the past.
Back iin the 90s, if you bought into an IPO - no matter how shitty the company - you were going to make money because of everyone bidding the price up. Those days are long gone and some folks who participated in the IPO, IMHO, were hoping to buy and watch the FB hype boost their stock for a quick and easy profit. Again - speculation or gambling.
I disagree. The point of an IPO is to get money for the company doing the offering, not to make institutional investors rich. The stock was priced perfectly to extract the most money out of investors and give it to Facebook. Had they priced it at $25 and it had popped to $50, Facebook would have had less money at the end of the day.
Maxim: People cannot follow directions.
Increases in truth directly with the length of time spent explaining them
But he is and will always be far richer then all of us so in this case I will shut the fuck up. I would rather make the mistakes he made then the successes I have made in life.
I haven't thought of anything clever to put here, but then again most of you haven't either.
Why is this somehow a necessity?
I'm god, but it's a bit of a drag really...
I've yet to see evidence of that
Zuckerberg sold a bunch of his stock as part of the IPO. He is set for life.
He isn't responsible for the initial price of the IPO. He didn't set it. He sold as high as he could, cashed out and took care of himself.
The social game crazy may be on the decline (Zynga's stock is also tanking). That accounted for a lot of the page hits and revenue for Facebook. Facebook has failed to branch out into other forms of revenue, and when people actually wanted a Facebook-branded phone, they failed to get anything to market.
Twitter continues to grow. Google+ continues to grow. And more and more kids have Tumblr accounts without Facebook accounts suggesting perhaps the bigger trend. I'm not sure any social network is built to last forever.
http://blindscribblings.com - Tasty pop-culture in conceptual fashion.
They priced it too high.
How can you possibly say it was priced too high? If all of the shares Facebook was selling were bought by someone at $38, then that was the correct price. If they set it at $25 then the price would still be exactly where it is today but Zuckerberg and his friends would have made a lot less money.
The price the stock started at was set to make the current stakeholders the most money possible, not to help make early investors the most money possible.
-- All that is necessary for the triumph of evil is that good men do nothing. -- Edmund Burke
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.
Zuck cannot lose control of the company unless he chooses to. His interest is majority and fully controlling. The board is advisory at best, impotent otherwise.
The following are crucial snips from the S-1 filing:
Our CEO has control over key decision making as a result of his control of a majority of our voting stock.
As a result of voting agreements with certain stockholders, together with the shares he holds, Mark Zuckerberg, our founder, Chairman, and CEO, will be able to exercise voting rights with respect to an aggregate of xxx shares of common stock, representing a majority of the voting power of our outstanding capital stock following our initial public offering. As a result, Mr.ÂZuckerberg has the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, Mr.ÂZuckerberg has the ability to control the management and affairs of our company as a result of his position as our CEO and his ability to control the election of our directors. Additionally, in the event that Mr. Zuckerberg controls our company at the time of his death, control may be transferred to a person or entity that he designates as his successor. As a board member and officer, Mr.ÂZuckerberg owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr.ÂZuckerberg is entitled to vote his shares, and shares over which he has voting control as a result of voting agreements, in his own interests, which may not always be in the interests of our stockholders generally. For a description of these voting agreements, see "Description of Capital Stock-Voting Agreements."
Controlled Company
Because Mr.ÂZuckerberg controls a majority of our outstanding voting power, we are a "controlled company" under the corporate governance rules for publicly-listed companies. Therefore, we are not required to have a majority of our board of directors be independent, nor are we required to have a compensation committee or an independent nominating function. In light of our status as a controlled company, our board of directors has determined not to have an independent nominating function and to have the full board of directors be directly responsible for nominating members of our board. Additionally, as described in the section entitled "Description of Capital Stock-Anti-Takeover Provisions-Restated Certificate of Incorporation and Bylaw Provisions," so long as the outstanding shares of our Class B common stock represent a majority of the combined voting power of our common stock, Mr.ÂZuckerberg will be able to effectively control all matters submitted to our stockholders for a vote, as well as the overall management and direction of our company.
The Forbes bankster types are just sore because they got played. Worse, they got played by a geek – someone they underestimated because he wasn't wearing a $5,000 business suit, but who proved by his handling of the IPO that he was smarter than all of them put together.
Zuckerberg already cashed out to the tune of a billion dollars. Why should he care that a bunch of arrogant bankers lost money on the stock? Not his problem. He still has a controlling interest in the company thanks to the Class B shares he retained, so the other shareholders can't even force him out.
Zuckerberg beat Wall Street at their own game, and they can't stand it.
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.
Well, NASDAQ is for the technical trading problems, but that's kind of a different issue.
Whether Facebook or the underwriting banks or any of the insiders accused of misdeeds in connection with the IPO "give" FB shareholders any money depends, I would think, mostly on the outcome of the many lawsuits that seek to compel them to do so.
If, as the central accusation in many of those lawsuits goes, any of those parties are found to have deliberately withheld material information that they were required to disclose in connection with IPO, then the parties found to have done so are quite likely to be ordered to pay some amount of money to the people financially harmed as a result of that failure.
We're talking about Forbes, here you know?
The East Coast financial world lives in terror that some punk in a hoodie is going to yank the rug out from under them. They love the "techies needs suits" narrative, and go for it whenever they can.
The irrelevant snipe about Greece and Spain is just Forbes waving their flag as "Austerions". Actually the troubles in Greece and Spain result from them not having they're own currency, not with their debt level, but it's very, very important to worry about government debt or some crazies might suggest doing something about 8% unemployment... like taxing the rich to hire teachers.
By the way, if you took Forbes seriously when looking for investment advice, you would almost certainly lose a lot of money: http://www.forbes.com/sites/charleskadlec/2011/02/22/higher-inflation-is-on-the-way/
So calm down, yes this is ridiculous, but it's just Forbes. Tribal loyalty is more important than being right.
the PE ratio is still 60
Right. As the value investment community has been saying since before the IPO, based on earnings, Facebook is worth maybe $6 per share.
Facebook traffic climbed steadily until mid-2011, but has been more or less flat for the last year. Revenue is down. The growth phase is over.
And that's the optimistic view. The pessimistic view is that Facebook is pulling a Myspace. Facebook is trying to increase revenue per user by showing more and bigger ads. That didn't work out well for Myspace or Yahoo.
Social networks are probably going to move to mobile devices, and Facebook has no clue how to make money in mobile. They even said that in their prospectus.