the next Facebook ››
Jason Voorheees @ May 17, 2012 11:30 AM
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The facebook IPO stands to sell billions of dollars in shares tomorrow, but I can't help but wonder whether or not it's really worth that much, or even just exactly what it is that people think they're buying. This is not apple, or intel or microsoft; there is no actual, physical product this company produces, only the virtual product of 'social networking' and associated services, services which it seems may be provided by a multitude of, maybe most other companies sooner than anyone thinks. Not that it is quite the emperor's clothes or "pet rock" of our time, but it does seem that it might possibly be just a tad overvalued. Will be interesting to follow, especially if it collapses after people pay $100 billion dollars for shares.
.GM's exit may signal challenges for Facebook cnbc.com
It remains to be seen whether the social network's efforts to drive user engagement will lead to ad sales.
Facebook seems to have hit yet another hurdle right before its IPO. One of its largest advertising clients, General Motors (GM), has decided to stop advertising on the site. GM said its paid ads on Facebook have little impact on its targeted consumers' purchases.
If other advertisers do the same, it may signal challenges for Facebook's ad revenue growth. Currently, text and display advertising is the social network's most profitable and primary business.
GM spent nearly $10 million on Facebook advertising last year. If this move signals the beginning of a trend and more advertisers leave Facebook, it could lead to a significant decline in ad revenue growth, which has already slowed considerably, following a hockey-stick growth trajectory.
GM will continue to maintain its pages and online presence on Facebook, but that won't earn Facebook any revenue.
Facebook Users Don't Trust Site on Privacy Issues
By Ian Paul, PCWorld May 15, 2012 9:00 AM
Facebook Users Don't Trust Site on Privacy IssuesFacebook lays claim to more than 900 million members across the globe and may have a massive initial public offering in the coming days, but a new poll says users have trust issues with the social networking site. More than half of those surveyed, 59 percent, said they had little to no trust that Facebook would keep their information private, according to an AP-CNBC poll. The study also found that 54 percent of the survey's 1,004 respondents would not “feel safe at all” purchasing goods and services through the world's largest social network.
The news that Facebook users do not trust the company to keep their information private is hardly surprising given the social network's shady past with privacy-related issues. Concerns over privacy changes involving new products such as Beacon, frictionless sharing, Instant Personalization, and Places always make headlines. And seemingly never-ending changes to Facebook's terms of service and privacy policy allow users to think twice about trusting Facebook.
Despite Facebook's privacy challenges, however, the social network keeps on growing, and users continue to share their most personal information with a company they reportedly don't trust. Facebook in July 2010 claimed 500 million users and in the less than two years since the social network has nearly doubled its user base. And despite Facebook's privacy woes, it is still one of the most popular sites for sharing photos with an average of more than 300 million images uploaded daily for the three months ending March 31, according to the company.
Facebook IPO fuels Bay Area spending boom
Employees and investors expecting a big payday are spending heavily ahead of the company's IPO.
May 17, 2012
SAN FRANCISCO — The wait for tables is getting longer at Buck's, a popular breakfast spot for the tech elite and a weather vane for the Silicon Valley economy. Here, like everywhere else, Facebook is the talk of the town.
"Charles Schwab was in the restaurant the other day, and I asked him to hook me up with some Facebook shares," said Jamis MacNiven, owner of Buck's, in the wealthy suburban enclave of Woodside. "He told me even he can't get Facebook shares."
The new tech boom officially gets underway Friday when Facebook Chief Executive Mark Zuckerberg rings Nasdaq's opening bell remotely from the company's Menlo Park, Calif., headquarters, launching the largest initial public offering of stock in Silicon Valley history.
The social media company's projected $100-billion valuation heralds a new era of prosperity in a region famous for minting fortunes.
Wealth has trickled down to employees and investors who cashed in their shares ahead of the IPO on private exchanges. Others are spending in advance of their big payday, fueling an economy that's already humming thanks to the Bay Area's thriving technology sector.
Upscale stores and restaurants are packed. Good luck getting a table at Madera in Menlo Park, not far from Facebook's headquarters. The see-and-be-seen restaurant at the swanky Rosewood Sand Hill hotel is booked solid for lunch almost daily.
Luxury cars are flying off dealers' lots. In San Francisco, San Mateo and Santa Clara counties combined, luxury vehicles accounted for nearly 21% of new car registrations from April 2011 to March 2012. That's almost double the national average, according to automotive research firm Polk.
Uber, which provides young tech titans with on-demand limousine service at the touch of a smartphone app. Exec provides freelance go-fers to fetch dry cleaning and run other errands.
Then there's Lux Delux, a start-up run by Andy Hsieh, brother of Tony Hsieh, founder of online shoe retailer Zappos. The invitation-only travel service books getaways to Las Vegas, providing VIP perks such as tables at the hottest restaurants, rock-star access at shows and penthouse suites at hip hotels.
Snooki and the Situation would do well to watch their well-tanned backs. "Silicon Valley," a new reality show planned for the Bravo network, is gunning for "Jersey Shore." Its executive producer is Randi Zuckerberg, Mark Zuckerberg's sister.
"We're the best thing happening in America," said one tech entrepreneur, who asked to remain anonymous so he could speak candidly. Celebrities "might be more famous, but this is where the true value is being created."
holy hubris.
Tim E. Husk @ May 17, 2012 11:56 AM
It's absolutely overvalued, but I won't pretend to know a lot about IPOs and tech investing. I have read a fair bit about the difficulties of tech companies trying to retain control after the IPO, though, and Facebook seems like it will be no exception. Zuckerberg and a few others will have to own a significant majority of shares to keep innovating.On the other issue, I just keep waiting for Facebook to implement something like Google+ circles. Although I would happily delete my account if I could, the reality is that I don't use Facebook to socialize but to keep in contact with a complex network of professional contacts (some of whom are also friends), with a smaller set of friends and family. Not mixing the two is of paramount importance.
Jason Voorheees @ May 17, 2012 8:59 PM
yeah, but google was actually awesome and changed the way the entire internet functioned. facebook, not so much.
crunkmoose @ May 18, 2012 12:20 PM
It will make a handful of investors rich, make You're All a Bunch of Suckersberg even richer, make the already wealthy Winkledouche fucks cry... and then after a while it will just be another also-ran stock trading around or under $10 for the rest of its existence.I could be wrong, of course... its not like this is my forte, but this is my call on the whole thing.
Jason Voorheees @ May 18, 2012 6:21 PM
^lol. i'd almost feel bad for them except for the fact that their greatest legacy will most likely be having been the company that created the biggest and most invasive platform for data mining and the further erosion of personal privacy. 
Facebook underwriters prop up stock as it nears break-even mark
May 18, 2012 AP
NEW YORK – The big pop in Facebook Inc. shares never came.
Buyers did not rush into the market to snap up shares of the social networker. And the big Wall Street banks that brought Facebook public scrambled to prevent the stock from collapsing into declines.
The underwriters averted a potential debacle by scooping up shares of the company during the Nasdaq debut. This propped up the stock, keeping it above the $38 offering price through most of the day.
“When a deal gets priced and breaks price on the first day, that’s definitely a major embarrassment," said trader Andrew Frankel, co-president of Stuart Frankel & Co. "But it didn’t do that here – at least for the time being.”
The practice is pretty standard during IPOs, especially high-profile ones like Facebook. The big banks buy into a wave of selling as a way to prevent their customers from suffering big losses.
The syndicate of underwriters led by Morgan Stanley helped prop up shares.
The stock bolted at the open to $42.05, but then quickly withered in the first hour of trading. It touched $38 several times, but eeked out a small rebound and leveled off at about $40.
Barry Ritholtz, head of Fusion IQ, an investment research firm, added: "It pretty much started straight down to $38, where as normally happens, the underwriters defended it.
Experts say now's not the time to buy Facebook
Richard Drew, AP
Investors left out of the Facebook IPO are getting a second chance, but some might question if they even want it.
Mania over shares of the No. 1 social-networking company quickly turned to skepticism Friday. Shares barely budged from their initial public offering price of $38 and closed at $38.23 on the first day of trading.
Investors who piled in the first day lost as much as 15% in just a few hours.
Many analysts are suggesting that investors resist the urge to jump in.
"I would not touch this," says Josef Schuster of IPOX Schuster. "Facebook's (stock) trend is to the downside."
Even though investors can get a crack at owning Facebook at essentially the IPO price, they should take a pass because:
•Weak first day. The IPO's tepid debut breaks confidence in the stock, just as it needs it. Investors will now focus on the company's earnings growth, already showing signs of weakening, says Francis Gaskins of IPOdesktop.com. The biggest IPO after Facebook, General Motors, ran into similar weakness in its debut and was never able to shake it off. GM rose 3.6% on its first day of trading in 2010, but since has fallen nearly 38% from its first-day close.
•Lofty valuation. Facebook is trading for more than 100 times its 2011 earnings. That's well above the Google's P-E of 18. Stocks with such high valuations and unproven business models such as Facebook tend to disappoint as they cannot keep up with expectations, says Robert Maltbie of Singular Research.
•Broad market struggles. Volatility in Facebook's stock will be exacerbated by the stock market's struggles as investors avoid added risk, Schuster says. Stocks are down 5% over the past 10 trading days on concerns about Europe and Asia.
•Individual investor dogpile. Mania-level interest in Facebook by individual investors shows just how hyped, and overvalued, the stock is, Gaskins says. Trading in Facebook accounted for 22% of volume at top broker TD Ameritrade, says the large brokerage's Steve Quirk.
Patient investors still interested in Facebook will get another chance to buy, at a lower price, Gaskins says. Investors should avoid the stock until it hits roughly $20, Gaskins says. Schuster says the stock deserves a closer look at $31 a share.
Matti Frost @ May 19, 2012 2:25 PM
They would have done better if they went public before jumping the shark.
Jason Voorheees @ May 21, 2012 7:29 PM
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Facebook Falls 11%, Closes Below $38/Shr IPO Price
--Facebook shares close below IPO price of $38
--Company's market cap falls below $100 billion
--Facebook CEO Zuckerberg suffers $2.1 billion of paper losses
May 21, 2012 WSJ
By Drew FitzGerald and Matt Jarzemsky
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--After the social network's stock fizzled on Friday in its long-awaited debut, its stock fell 11 percent on Monday, even as the rest of the stock market rallied.
The downward spiral has left some people sitting on big losses, and others scratching their heads.
Facebook Inc. (FB) shares fell 11% Monday, dropping well below their initial public offering price of $38 on just their second day of trading, a black eye for all those involved with the social networking company going public.
Shares of the social media giant closed at $34.03 after sliding as low as $33 during the session. Based on that price, the company is now valued at $93.24 billion, below the $104 billion it was worth at the time of the IPO. Facebook shares need to hit $36.50 for the market cap to go above $100 billion again.
Falling below the offer price so quickly is considered disappointing for a new stock, especially for the most heavily traded IPO of all time. The reasons cited for the decline include an overly aggressive IPO price, an increased number of shares offered and concerns about Facebook's slowing revenue growth.
"The underwriters completely screwed this up," said Michael Pachter, analyst at Wedbush Securities. "This thing should have been half as big as it was, and it would have closed at $45."
A spokesman for Morgan Stanley (MS), the IPO's lead underwriter, declined to comment.
While investor enthusiasm early on was high for Facebook shares, the company's more than $100 billion valuation troubled some analysts.
"Facebook's IPO priced at a level well above where we foresaw compelling 12-month returns," BTIG analyst Richard Greenfield said in a research note Monday. With revenue and earnings growth decelerating in 2012, "we find Facebook's current valuation unappealing."
The drop Monday dealt Facebook Chairman and Chief Executive Mark Zuckerberg about $2.1 billion of paper losses, though his stake was still worth more than $17 billion Monday morning. The social network's founder also retains almost 56% of Facebook's voting power.
The slump is likely to turn up the heat on Facebook to boost its performance by generating more revenue from its massive user base, which includes more than 900 million active users. The company's latest first-quarter earnings slipped 12% amid surging expenses.
Revenue actually fell compared with the fourth quarter, a decline the company blamed on "seasonal trends" in the advertising business and growth in markets where Facebook generates less revenue per user, according to a regulatory filing last month.
Rob Enderle, a principal analyst at San Jose Calif.-based Enderle Group, said Facebook's earnings and revenue don't justify the high price of its stock.
"The insiders made a ton of cash, but the investors who are probably Facebook users lost a lot of money, and it's going to affect their impression of the company," he said. Enderle added that he targets a "conservative" price between $18 and $20 based on the company's earnings and risk.
On Friday, Facebook's shares repeatedly tested the $38 level, but Morgan Stanley reportedly moved to prop up Facebook's stock Friday. Dave Lutz, managing director at Stifel Nicolaus, said Facebook's underwriters might have stopped supporting the stock's price to thwart short-term traders counting on the underwriters buying at $38.
"We think this could just be a technique of Morgan Stanley trying to shake out some of the weaker hands," Lutz said. Facebook shares are now down 24% from their high of $45 Friday.
The disappointing IPO also has dragged down other newly issued online stocks Friday, such as Zynga Inc. (ZNGA), LinkedIn Corp. (LNKD), Groupon Inc. (GRPN) and Pandora Media Inc. (P).
On Monday, Zynga fell 1% to $7.09, while LinkedIn declined 2.2% to $96.84. Groupon rebounded, jumping 7% to $12.39, and Pandora climbed 3.1% to $10.07.
Also, GSV Capital Corp. (GSVC), a Woodside, Calif.-based fund that invests in venture-backed private companies, posted big declines. GSV has invested in Facebook, Groupon and Zynga, as well as the social-networking company Twitter Inc. GSV fell 9.8% to $11.86.
Many not participating in Facebook's IPO are relieved to be on the sidelines.
"It's gonna be a very bumpy ride, but I don't think this stock even in the $30s makes sense," said Jeff Sica, head of Morristown, N.J.-based SICA Wealth Management, who steered clear of the IPO. "People decided just not to buy into all the hype."
Sica said he grew wary of the stock after an institutional investor he wouldn't name seemed too eager to offer his firm shares ahead of Facebook's Friday debut.
Adam Sarhan, head of New York-based fund Sarhan Capital, said, "From my standpoint, I'm very happy not to be involved."
How the Botched Facebook IPO Has Created a Short-Term Opportunity in Other Social Names
By Conor Sen MYV
May 21, 2012
Morgan Stanley likely hedged its Facebook exposure. Once it unwinds its hedges, those names could move higher.
Imagine you're the humble head of US equity trading at Morgan Stanley (MS), minding your own business and trying to dodge bullets while Europe implodes and JPMorgan (JPM) gets dragged down by its CIO scandal.
Now imagine you're sitting at your desk Friday morning and learn that the Facebook (FB) IPO pricing isn't going as well as underwriters, led by your colleagues in investment banking, thought. You're called by a Very Important Person and ordered to buy every share of stock offered at $38. It appears that this happened. With 580 million shares trading hands on Friday, if you wound up buying just 5 million shares, that would be $190 million in risk on your books. How do you react?
You have two options:
1. Carry $190 million in Facebook risk home over the weekend, knowing that if you stop supporting the price on Monday and selling continues, or if Europe gets worse, the stock could fall significantly. If the stock opened on Monday at $33 you'd suffer a mark-to-market hit of $25 million.
2. Figure out the best way to hedge your purchases, and do it before the close of business on Friday.
It's my belief that the latter happened, which was the reason for the large decline in other social names, not a psychological letdown of Facebook pricing lower than some thought.
Hedging an IPO in its first day of trading is a nightmare. Correlation is a guess. Volatility is a guess. Calculating hedge ratios in the best of times is tricky. In a situation like this, it's much more art than science.
To hedge $100 of Facebook risk, how much LinkedIn (LNKD) should one sell? Or Zynga (ZNGA)?
Looking at closing prices on Friday, we see that Facebook-related names were pummeled. GSV Capital Corp (GSVC), which owns Facebook stock, fell over 18%. Zynga fell over 13% and was halted for an extended period because of the severity of its decline. Yelp (YELP) fell over 12%. Pandora (P) fell over 7%. The Global X Social Media Index Fund (SOCL) fell over 6%. So did Groupon (GRPN). LinkedIn fell over 5%. Those are the most liquid ways of hedging Facebook.
Here's a chart showing Friday intraday moves in Zynga, GSV Capital, and Facebook.
In addition to the catalyst of Morgan Stanley hedging its Facebook exposure, there were two more events – Friday being options expiration day, which often exacerbates large price moves, and continued jitters surrounding Europe leading to low liquidity, with the Volatility Index (^VIX) being at 25.
So what happens this week? Morgan Stanley is unlikely to support Facebook forever, and it will look to unwind its Facebook exposure and hedges as soon as possible. With markets oversold – the Dow Industrials (DIA) have fallen for 13 out of 15 trading days for the first time since 1982 – any bounce combined with Morgan Stanley covering its hedges could lead to an explosive rally in the names that fell so hard on Friday.
Zynga in particular looks compelling. It closed Friday with a market capitalization of $5.3 billion, of which $1.5 billion is cash. Consensus revenue estimates for this year, which tend to be a low bar so that companies can look good beating them, are $1.45 billion. So Zynga's trading at an enterprise value to sales (EV/sales) ratio for this year of 2.6x. Facebook, expected to do around $5 billion in revenues this year, is trading with an EV/sales ratio of more like 20x. Noted growth companies like Altria (MO), Coke (KO), and McDonald's (MCD) trade at EV/sales ratios of more like 3-4x. Something closer to Zynga's peer group, like OpenTable, trades at an EV/sales ratio of 5.4x.
Zynga underwriter Morgan Stanley projects Zynga will earn $623 million in adjusted EBITDA in 2013, giving Zynga an EV/EBITDA ratio of 5.9x 2013 projections, which would be cheap for Wal-Mart (WMT), let alone an Internet growth company.
Obviously, in the short-run, volatility in the new Internet names has become immense, but Zynga offers 50% to 100% upside with very reasonable downside here.
crunkmoose @ May 22, 2012 1:34 PM
Well, Suckerberg has made a huge profit on this. Stock holders, however.. not so much.
