At the end of last week, Facebook (FB) successfully priced a secondary offering of almost $4Bn through the sale of approximately 70MM primary and secondary shares mostly sold by Facebook founder and chairman Mark Zuckerberg.
Cyrus Sanati wrote in Fortune at the end of last week that, "Facebook is clearly tipping its hand today, saying that its stock is overvalued and the company isn't going to perform as well as the market believes it will." In a snarky piece, Sanati argues that Facebook has nothing to do with its cash, that debt is cheaper, and that since its audience is declining, it must be that its shares have peaked. Sanati basically argues that as a shareholder you should jump off this ship before it sinks.
I could not disagree more. Here is my rationale:
- Facebook's IPO was botched and its stock dropped 50% post IPO. The company cannot afford another black eye like that. I do not think Mark Zuckerberg nor Sheryl Sandberg would risk a secondary offering if they thought the business was slowing or not delivering.
- The timing of this secondary is curious. Most companies do not do share offerings at the end of December. Facebook did a huge offering at the end of Q4. This tells me that they think/know already that this quarter is "in the bag," and that performance will be good (maybe very good) for the quarter. Otherwise, you would not risk the liability of an offering this late in the quarter.
- All (let me say again, ALL) of my portfolio companies that advertise online are seeing increasing conversion of advertisements on Facebook, and it is the most effective advertising channel for mobile. ALL of my companies are increasing ad spend on Facebook as time goes by because the channel really performs. I assume every online advertiser is seeing similar results. Facebook is also the only platform that can truly retarget users across both the PC web and mobile. It is the best retargeting platform across devices that exists today.
For these reasons and others I continue to stay long FB.