At the onset, I was verbal in saying I was never interested in the Facebook IPO. But I failed to explain why. My guts told me it would be crazy to subscribe to its IPO. But it was only yesterday, that a very good friend posted the question to me again on why the Facebook IPO failed. I didn't answer. Emotions were pouring but I owe this person an explanation that is more than emotional reasons. I have to give him a valid logical story.
And so here goes my personal effort in explaining the now famous fiasco of the facebook IPO.
Facebook has a very impressive record of 900 million users, that naturally attracted the attention of every major advertisers in town. Not only do they have 900 million users, but more than half of them log in to the site on a daily basis. Such loyal followers only whet the appetites of the advertisers.
But then, a few weeks before the IPO is launching, news came out that advertisers have doubts on continuing to put their green bucks in this popular social networking site. Why? because without a proper tool for measuring the return on investment, the big bosses of these advertising agencies are not keen in writing the checks without proof that this is indeed a wise investment. This is such a serious concern that Facebook changed its prospectus to reflect the expected decline in revenue growth. But Morgan Stanley continued to be enthusiastic about the IPO that it still recommended to set the IPO price at the higher range of $38.
Now, this opens another question to me. How did they value the firm? When a company is going public, the first order of business is to value the firm. (I never participated in any IPO's or worked in any investment banks much to my lamentation. But I just guess this is an important exercise for them. So if Im wrong, do forgive me, dear readers) . To continue, if I try to do due diligence , sit down, take out my calculator and spreadsheets, to value this firm, I would face a blank wall. I wouldn't know where to start. I know it has 900 million users. But my revenue forecast comes from advertisers who are now in a wishy-washy stage in spending money in this company. So, who can truly answer with confidence, what will Facebook be 10 years from now? I can be bullish and bank on those 900 million users and the revenue growth they can generate from the advertisers. But I can go the other way and I can be bearish too and say, maybe when my daughter celebrates her debut (18th birthday), she would say "What is facebook, mama?" Thing is it can go either way. The possibility is just too wide an open field to truly create a valid forecast of revenues and proper valuation for this company. So, how do you value Facebook Inc. I do not know. And because I do not know, Im not betting my child's trust fund in this. I'd rather invest it in a company I understand. And it does not help that our market is continuously plagued with crisis one after another that puts the 10 Plagues of Egypt to shame. Investors are more afraid than optimistic. Gone are the days when investing in IPO's is a sure-ball thing. And Wall Street rookies celebrate their profits with vacations in Aspen.
And NASDAQ's unexplainable failure to complete trades at the early hours of the first trading day of Facebook cast a shadow of doubt to those short-time investors. (And it did seem that all investors were merely day traders who just subscribed to the IPO for a quick buck). NASDAQ couldn't handle the massive number of trades on the early hours of that day, and they encountered a technical difficulty that nobody can seem to answer until now. They say they don't know what happened and why they were only able to start trading at 11:30AM. Well, if they don't know, I sure don't know too. Such professional answers.
Now, let's look at the main man, Mark Zuckerberg, founder of Facebook. He controls 57% of the company and is chairman of the board. We all saw the movie and know he is intelligent. But what we need right now is the confidence that he would run his business and make decisions with the intention of creating shareholder value. This is what every investor is looking for. So far, the only thing we saw was his purchase of Instagram, a social networking site for sharing photos. But the rumors circulating on Wall Street on how this decision came about shows us a chairman who snubs protocols and procedures. Scary. We aren't in the halls of Harvard anymore where one person can do the project meant for a team.
And lastly, let's look at the product of this company: the facebook site. We all know how ecstatic we were when Facebook was launched. Suddenly, we become re-acquainted with our high school classmates, old neighbors and relatives we don't see except on holidays. We happily post pictures of our families and of ourselves dining in this fancy places showing our Hermes bag. But Facebook NOW faces serious issues of privacy risk to its users. And more and more users are becoming conscious and aware of the malevolence of letting the whole world know of all our activities of every hour every day. Suddenly, it isn't fun anymore when you bump into a classmate you haven't seen in 10 years know more about you and your family than your own mother. And let's not even count those eager stupid mistresses who happily posts sweet pictures of you (and worse, tag you in the picture). Now, every Tom, Dick and Harry know you are carrying an affair with this 20 year old leggy creature. That would be such an ego booster for you. Well, at least until the Mrs learns of it and throws you out of the house.
Today, the pain in the ass of Facebook is the increased usage of Facebook on mobile devices. The problem is that if facebook users continue to access Facebook mobile products as a substitute for access through personal computers, the company will fail to earn anything from it. OR if they do something about it ,it would increase their operational expense. Either way, their forecasted revenue growth would be negatively affected.
But what of tomorrow? What will be their problem next year? in 3 years? Let's face facts: Netizens, like you and me, are not a loyal bunch of people. This is like fashion. We keep changing our minds. And we go to what's hot. Can you say that in 10 years time, facebook will continue to be a hot item? Hmm.... do i really need to think this over? We are like a herd of sheep. Where one goes, everyone goes.
And so here goes my personal effort in explaining the now famous fiasco of the facebook IPO.
Facebook has a very impressive record of 900 million users, that naturally attracted the attention of every major advertisers in town. Not only do they have 900 million users, but more than half of them log in to the site on a daily basis. Such loyal followers only whet the appetites of the advertisers.
But then, a few weeks before the IPO is launching, news came out that advertisers have doubts on continuing to put their green bucks in this popular social networking site. Why? because without a proper tool for measuring the return on investment, the big bosses of these advertising agencies are not keen in writing the checks without proof that this is indeed a wise investment. This is such a serious concern that Facebook changed its prospectus to reflect the expected decline in revenue growth. But Morgan Stanley continued to be enthusiastic about the IPO that it still recommended to set the IPO price at the higher range of $38.
Now, this opens another question to me. How did they value the firm? When a company is going public, the first order of business is to value the firm. (I never participated in any IPO's or worked in any investment banks much to my lamentation. But I just guess this is an important exercise for them. So if Im wrong, do forgive me, dear readers) . To continue, if I try to do due diligence , sit down, take out my calculator and spreadsheets, to value this firm, I would face a blank wall. I wouldn't know where to start. I know it has 900 million users. But my revenue forecast comes from advertisers who are now in a wishy-washy stage in spending money in this company. So, who can truly answer with confidence, what will Facebook be 10 years from now? I can be bullish and bank on those 900 million users and the revenue growth they can generate from the advertisers. But I can go the other way and I can be bearish too and say, maybe when my daughter celebrates her debut (18th birthday), she would say "What is facebook, mama?" Thing is it can go either way. The possibility is just too wide an open field to truly create a valid forecast of revenues and proper valuation for this company. So, how do you value Facebook Inc. I do not know. And because I do not know, Im not betting my child's trust fund in this. I'd rather invest it in a company I understand. And it does not help that our market is continuously plagued with crisis one after another that puts the 10 Plagues of Egypt to shame. Investors are more afraid than optimistic. Gone are the days when investing in IPO's is a sure-ball thing. And Wall Street rookies celebrate their profits with vacations in Aspen.
And NASDAQ's unexplainable failure to complete trades at the early hours of the first trading day of Facebook cast a shadow of doubt to those short-time investors. (And it did seem that all investors were merely day traders who just subscribed to the IPO for a quick buck). NASDAQ couldn't handle the massive number of trades on the early hours of that day, and they encountered a technical difficulty that nobody can seem to answer until now. They say they don't know what happened and why they were only able to start trading at 11:30AM. Well, if they don't know, I sure don't know too. Such professional answers.
Now, let's look at the main man, Mark Zuckerberg, founder of Facebook. He controls 57% of the company and is chairman of the board. We all saw the movie and know he is intelligent. But what we need right now is the confidence that he would run his business and make decisions with the intention of creating shareholder value. This is what every investor is looking for. So far, the only thing we saw was his purchase of Instagram, a social networking site for sharing photos. But the rumors circulating on Wall Street on how this decision came about shows us a chairman who snubs protocols and procedures. Scary. We aren't in the halls of Harvard anymore where one person can do the project meant for a team.
And lastly, let's look at the product of this company: the facebook site. We all know how ecstatic we were when Facebook was launched. Suddenly, we become re-acquainted with our high school classmates, old neighbors and relatives we don't see except on holidays. We happily post pictures of our families and of ourselves dining in this fancy places showing our Hermes bag. But Facebook NOW faces serious issues of privacy risk to its users. And more and more users are becoming conscious and aware of the malevolence of letting the whole world know of all our activities of every hour every day. Suddenly, it isn't fun anymore when you bump into a classmate you haven't seen in 10 years know more about you and your family than your own mother. And let's not even count those eager stupid mistresses who happily posts sweet pictures of you (and worse, tag you in the picture). Now, every Tom, Dick and Harry know you are carrying an affair with this 20 year old leggy creature. That would be such an ego booster for you. Well, at least until the Mrs learns of it and throws you out of the house.
Today, the pain in the ass of Facebook is the increased usage of Facebook on mobile devices. The problem is that if facebook users continue to access Facebook mobile products as a substitute for access through personal computers, the company will fail to earn anything from it. OR if they do something about it ,it would increase their operational expense. Either way, their forecasted revenue growth would be negatively affected.
But what of tomorrow? What will be their problem next year? in 3 years? Let's face facts: Netizens, like you and me, are not a loyal bunch of people. This is like fashion. We keep changing our minds. And we go to what's hot. Can you say that in 10 years time, facebook will continue to be a hot item? Hmm.... do i really need to think this over? We are like a herd of sheep. Where one goes, everyone goes.
friendster, myspace...everybody becomes a 'has-been' eventually. it was supposed to be a quick 'in and out' trade for most people. they did not count on nasdaq screwing them.
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