Call me crazy, but I think I am going to stay away from owning Facebook (FB) for quite some time.
I mean, not only do I think the social media site is a replay of MySpace which was a complete mess after a while, but why would I want to put my money into a company that has messed up just about everything since its IPO?
Look, nothing personal here, but if I were on a Board of Directors that was run roughshod over by one young genius with an ego and a blind spot, while the company was privately held, why would I consider staying when that same person has virtually complete control over the company as if it were still his private enterprise now?
Yes, I know Zuckerberg realizes that he now has a fiduciary responsibility to stakeholders, but when he holds all the cards to make just about every decision, that would send shivers down my spine for sure.
The way the IPO was handled before, during and after according to everything I have read, makes one wonder why anyone EVER gets involved in some of these over hyped, over valued, "wonder stocks".
Back on January 28th I wrote Facebook: Dead On Arrival For Investors which I noted:
The older version of Facebook, MySpace, is dead and virtually buried now. Thanks to the impact of the original Facebook. At this stage, I would be hard pressed to tell you the differences. Oh, I am sure there are, I mean after all, they will have an initial valuation of 100 billion dollars right? (The same size as McDonald's (MCD)).
Facebook will become the largest internet company IPO ever, at 10 billion bucks; five times larger than Google (GOOG), and the 4th largest U.S. IPO in history behind Visa (V), General Motors (GM) and AT&T (T).
Pretty good neighbors to hang with, dont'cha think?
There is one huge difference though. Facebook, in my very own tiny humble opinion, is dead on arrival for investors.
Looking back with 20/20 hindsight, would anyone place a valuation like that on Facebook today? I doubt it. The audacity to actually increase the price and size of the IPO shares simply stunned me. Not only that, I was told I could have as many shares as I want by a brokerage firm!
Hey I can remember Groucho Marx saying that he would not want to be a member of any private club that wanted HIM as a member. That was the way I felt, and now for the very first time, I understand completely what he meant. Even if it was meant to be humorous, it rang true to me in this instance.
At first I said sure, I will take 1,000 shares and sell at the open. Then a few days later after the Zuckerberg shenanigans (Instagram), the "road show", and the implausible upping of the share price I gave the thumbs down and decided to pass. Not a real tough decision.
Who Is Buying Shares Now?
Aside from the day traders, is anyone buying up shares of Facebook now? I mean the price has gone from $42 bucks down to $26.90/share and has so many issues facing it why would anyone want to own this stock?
I cannot think of too many reasons aside from maybe selling puts at some ridiculous entry price which probably never will get filled and if it did, I would make sure the valuation of the strike price I wanted to actually own shares at, was under a 10 PE.
As of now the PE is almost 70 and every, almost every, headline I read is a negative one.
How is this for a ringing endorsement from Facebook advertisers from this article today:
Four out of five Facebook Inc users have never bought a product or service as a result of advertising or comments on the social network site, a Reuters/Ipsos poll shows, the latest sign that much more needs to be done to turn its 900 million customer base into advertising dollars.
The online poll also found that 34 percent of Facebook users surveyed were spending less time on the website than six months ago, whereas only 20 percent were spending more.
The findings underscore investors' worries about Facebook's money-making abilities that have pushed the stock down 29 percent since its initial public offering last month, reducing its market value by $30 billion to roughly $74 billion.
Not quite what "investors" envisioned when all the pre IPO hype was being bandied about, right?
Its coming out-party, which culminated years of breakneck growth for the social and business phenomenon, was marred by trading glitches on the Nasdaq exchange. A decision to call some financial analysts ahead of the IPO and caution them about weakness in its business during the second quarter has triggered several lawsuits against Facebook and its underwriters.
Forty-six percent of survey respondents said the Facebook IPO had made them less favorable towards investing in the stock market in general.
I cannot make this stuff up folks. At one time IPOs excited the market and Facebook has single handedly turned that into "fear" it seems.
There is plenty of blame being tossed around, and this article outlines it fairly well.
- Morgan Stanley (MS):"The underwriters, in particulars the lead underwriter Morgan Stanley should be held responsible for the IPO mispricing"
- Nasdaq: "The technical problems on the first day of trading, starting with the delay in start of trading to delay/failure in confirmation of clients'' trades led to unprecedented confusion and later chaos."
- Mark Zuckerberg: "As the CEO of the company, Zuckerberg should share the blame for the IPO's unreasonably high valuation and large size. Further, the reports about Zuckerberg buying Instagram for $1 billion without consulting the board, lead to great concerns about the corporate governance at the company and the ability of the CEO to protect the interest of the investors."
- Investors: "It was well known that the company's revenues were going to be volatile. GM had pulled its advertising campaign from Facebook, just days ahead of the IPO. So, why did they invest in Facebook?"
I cannot come up with an answer to that last question, can you?
I am neither suggesting anyone buy or not buy shares of Facebook. Everyone has the right to decide for themselves. For me personally I would not own this stock unless someone gave it to me as a present, maybe.
Can anyone convince me otherwise?