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    Joe Nocera Gets Facebook Wrong

    By Michael Maiello on Sat, 05/26/2012 - 10:46am | Politics

    This morning, Joe Nocera writes an interesting column about the Facebook IPO which I think is ultimately wrong. Nocera's take is that, aside from people angry that the investment banks lowered their revenue forecasts without telling all clients (and simultaneously raising both the price of the IPO and the number of shares sold) that investors don't really have a lot to complain about.

    They didn't get a huge IPO pop that allowed them to make a fast profit flipping the stock.  Tough luck, says Nocera.  The point of an IPO is not to make instant money for the privileged few who can get in on the deal.  It's to bring public money into Facebook's treasury to fund the company's future needs.

    As for people who bought Facebook at $42 and now own it at $31, they should be happy, he says.  If you like it at $42, you should love it at $31.  You should buy more.  Then hold on for the long term, like a real investor.  That the IPO did not pop only means that it was properly priced.  Facebook did not go public to get you a 10% gain in one day.

    Nocera's a smart guy and an excellent business journalist.  His argument is strong.  The focus should be on results for the company, no profits for speculators.  But I think he's missing something.

    It wasn't just Facebook's coffers that were filled by the IPO.  There were large institutional investors and venture capital funds who either invested in early Facebook funding rounds or who bought shares on a thinly traded secondary market for private company stock.  These owners of Facebook shares, including Elevation Partners (of which U2's Bono is a member) and Goldman Sachs (never on less than two sides of any deal, Goldman was both a venture backer and an IPO underwriter) who darned well knew that Facebook's revenue and profit growth had slowed.

    I agree with Nocera that we should not shed many tears for people who bought the IPO and didn't make a quick profit. Nocera further argues, correctly, that when banks underprice IPOs to get that big pop, the speculators win but the company trying to raise money loses out by selling shares at a lower price than people were willing to pay.

    But in this case, it looks to me as if the smart money dumped its shares on a gullible public that had been whipped into a frenzy by Facebook's former owners and a complicit financial media.

    It's not the lack of pop we should be worried about.  It's the pump and dump.

    Topics: 
    Politics

    Comments

    destor,

       I am not well versed on IPO factoids.  I appreciate your post as it helps me better understand the basics.  I have long believed that it's not the 'market' per se that is volatile and dangerous, just too many of the people who participate in the processes.

       Appreciate.


    by Aunt Sam on Sat, 05/26/2012 - 2:32pm

    Winners and losers. Isn't that what the market is supposed to be all about?

    Nocera is right about not shedding a tear for those who made the bet but didn't make their killing on this deal as planned. But as for the winners and losers in this deal, it seems they were pretty well pre-determined according to who was provided accurate, up-to-the-minute data and who wasn't. We may not have much sympathy for gamblers who lose at the games they play. But we also don't take kindly to elites and insiders who play others for suckers. The latter is the reason the Facebook fiasco is getting such a bad response from the public at large. And very rightly so.


    by SleepinJeezus on Sat, 05/26/2012 - 3:48pm

    An irony is that Morgan Stanley allocated Facebook shares to its most profitable clients (even over its largest clients, if you were an MS client an you wanted to buy FB ou got them based on the amount of fees you'd paid).  So... they wound up killing their own whales.


    by Michael Maiello on Sat, 05/26/2012 - 4:01pm

    One of the top stories on the New Yorker right now is Leaving Facebookistan.

     

    This launch-pad explosion is also one more reason to be wary of what my colleague James Surowiecki has analyzed: Facebook’s two-tiered corporate-governance system, which ensures that founder Mark Zuckerberg retains firm control, and can’t be easily challenged by dissident shareholders, even if he steers badly off course, as highly self-confident men in their late twenties sometimes do.

    Those are reasons for investors to be doubtful; at least as worrying is what the I.P.O.-palooza signals about Facebook’s sovereignty over citizens, here and abroad. Facebook has become a public square of global importance. By the end of the summer, it may have more than a billion users, or about fifteen per cent of the world’s population. Some of these people are restive and see Facebook as a substitute public space for speech and dissent that their own authoritarian regimes don’t provide. Facebook users have already helped to foment revolution in some places (Egypt and Tunisia) and are still trying, at great cost, to overthrow one of the Middle East’s most brutal regimes.

    And somewhere else I ran across the opinion that moving all that money from Wall Street to Silicon Valley was a good thing for innovation.

    by Donal on Sat, 05/26/2012 - 5:45pm

    OKAY SON, YOU WISH TO GET IN ON 'THE GROUND FLOOR'?

    Well this is your chance.

    This is where America is headed son.

    No, no, no....you wonder where the folks are now who did not dig in on the IPO of Microsoft? Or Apple? Or Enron (okay forget about frikin Enron for chrissakes!)

    THE TIME IS NOW, NOT TOMORROW, NOT THURSDAY OF NEXT WEEK!)

    Yeah?

    Well who in the frick are you kidding?

    THE TIME IS NOW OR NEVER.

     

    TOMORROW IS TOO LATE!

    Okay son now get in your jammies and get in bed. It's late!


    by Richard Day on Sat, 05/26/2012 - 8:23pm