Thread: The Facebook IPO: The Last Great Wall Street Party

The Facebook IPO: The Last Great Wall Street Party

May 18th, 2012
89 comments

The Facebook IPO is kind of like a graduation party - everybody comes together for one huge blowout to celebrate the end of an era before going their separate ways. Unfortunately, most people on Wall Street do not understand how bittersweet this moment really is.

A tremendous amount of pain is ahead for Wall Street in the next few years, and we will probably never see anything like the Facebook IPO ever again. But the Facebook IPO sure has been fun to watch. Facebook is one of the largest companies to ever go public in the United States. According to CNN, 247 million shares of Facebook exchanged hands in the first 45 minutes of trading. The Facebook IPO was nearly ten times larger than any other Internet IPO in history, and the amount of money being made by some people on this deal is absolutely amazing. For example, it is being reported that Bono will make more money on the Facebook IPO than he has from being part of the band U2 for the past 30 years. Sadly, this euphoria is not going to last for long. The next wave of the global financial collapse is rapidly approaching, and once it strikes there will not be much for anyone on Wall Street to be smiling about at all.

During the IPO process, Facebook sold more than 420 million shares and raised about 16 billion dollars.

Those are incredible numbers.

At 38 dollars per share, Facebook would have a market cap of about 81 billion dollars.

So is Facebook worth 81 billion dollars?

Of course not.

But most stocks are tremendously overvalued at this point.

Yes, Facebook has 900 million users and it made about a profit of about a billion dollars last year.

But that does not add up to an 81 billion dollar company.

Not even close.

A recent article by Jay Yarow explained this in more detail....

As good a business as that is, it's not Google good. It's not Apple good. And at the current IPO pricing, Facebook has to be a much better business in the near future.

In fact, Yarow says that Facebook is going to have to dramatically improve in order to justify the current valuation....

So, what's the bull's case for Facebook? Unfortunately, it comes down to faith. You have to have faith that Mark Zuckerberg, Sheryl Sandberg, and the rest of the executives at Facebook will discover a magical money making product that will justify its valuation.

Unfortunately, there are already signs that the growth of Facebook is slowing down.

Advertising revenue during the first quarter of 2012 was only $872 million. That was a decline of 7.5 percent from the previous quarter.

And eventually someone will come along and topple Facebook just like Facebook toppled MySpace.

Remember MySpace?

Facebook did not even exist a decade ago. Right now there are young kids tinkering around in their college dorm rooms trying to figure out how to create something that will be even better than Facebook.

The truth is that Facebook is operating on borrowed time. It is not going to remain "hot" and "trendy" forever.

But for the moment, there are a whole lot of people out there that want a piece of Facebook.

Hey, I am not in the stock market at all, but even I am half-tempted to buy a few shares so that I can introduce myself as a "part-owner of Facebook".

After all, who doesn't like Facebook?

Yes, government agencies and big corporations use Facebook to spy on all of us. If you don't believe this, just check out this article, this article and this article.

But there is an incredible upside to social networking websites such as Facebook and Twitter as well.

They have given average people the ability to communicate directly with each other on a massive scale.

In the past, the big corporations pretty much had a monopoly on mass communication.

If you wanted to get your message out independently of the big corporations, you could hand out fliers, you could send out mass mailings (very expensive) or you could try to get a book printed.

But today something that you post on Facebook or Twitter could be seen by thousands (or even millions) of people within a few days.

The Internet is filled with a whole lot of garbage, but it can also be used as an incredible tool for good.

Sitting at home behind your desk, you have the potential to touch the lives of people on the other side of the globe through the Internet that you would probably never have a chance of influencing any other way.

So I am very thankful for Facebook.

We should use tools like Facebook to wake people up while there is still time. Our world is becoming increasingly unstable and we might not always have the opportunity to freely share our thoughts with the entire globe like this.

Just try to imagine a world without Facebook, Twitter, YouTube, blogs and Internet forums.

All of those things have only existed for a relatively short period of time, and there is no guarantee that we will always have them.

Instead of wasting our lives away in front of our televisions, we should be taking advantage of these tools to help change the world.

Every single day, hundreds of people are directed to my website from Facebook. I am hoping to eventually increase that to thousands of people per day.

A great economic collapse is coming to this world. People need to keep their eyes on the financial crisis in Europe and on the derivatives market. The coming financial tsunami will likely be even worse than the crash of 2008.

People are going to be looking for answers.

Now is the time to be a light shining in the darkness.

Not everyone has the time or the knowledge to be able to set up a website or make YouTube videos, but nearly everyone is capable of setting up a Facebook account or a Twitter account.

If you make even a small effort, you could end up touching the lives of thousands upon thousands of people.

Yes, there are a lot of negative things that can be said about Facebook, but at least for today let us celebrate it for what it has given us.

It has given us the opportunity to make a difference on a massive scale, and that is a wonderful thing.



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The Facebook IPO: The Last Great Wall Street Party

Paul B. Farrell

May 22, 2012, 12:02 a.m. EDT
How Facebook could destroy the U.S. economy

Commentary: Too-big-to-fail mentality replays the dot-com bubble

SAN LUIS OBISPO, Calif. (MarketWatch) — Facebook just joined a “troubled club,” warns the Economist. Now it’s just another “endangered public company.”

Yes, endangered. The number of public companies has declined 37% since 1997. The number of IPOs has dropped from 311 annually before 2000 to 99 the past decade. Meanwhile, the smart CEOs and the Super Rich are “going private,” to avoid government red tape restricting capitalism.

Over at BusinessWeek they’re warning investors that the growing number of “cutesy mascots” is a dangerous reminder “of the dot-com boom’s irrational exuberance.” They’re also red flagging new reports that “more Chinese investors are betting on U.S. start-ups.” And feeding the flames.

What’s going on? Facebook’s in trouble, that’s what. Now in the crosshairs of public scrutiny, everybody’s taking potshots. And the warnings are just beginning:

Everything from Facebook FB -8.90% being “too big to fail or succeed” to a Chicago attorney warning that the stock could “crater” if Facebook can’t grow revenues 41% annually for five years to “sustain its value” to a warning that Facebook’s one of the “Black Swans” that could eventually bring down the global economy.

Let’s begin, shining the bright light of behavioral science and psychology on what’s going on:

Facebook’s billion ‘friends’ in denial — deja vu the 1999 bubble mania

Behavioral economics is the new “psychology of denial.” Yes, it’s like falling in love. You can’t hear, can’t see the warning signs. Till after. After months of hype building up to this IPO, you’re convinced Facebook is your soul mate, that not getting shares in that IPO would leave you devastated, rejected by your true love. And nothing anyone says about the risks will change your mind. That’s the “psychology of denial.”

There are four main reasons for this pervasive psychology of denial among Main Street’s 95 million investors: First, investors hate admitting we’re irrational and ill-informed, cling to the fiction they’re rational. Second, optimism is the investor’s worst nightmare, but Americans still act optimistic no matter the odds. Third, Wall Street loves investors who are irrational, uninformed and optimistic, they’re easy to manipulate. Fourth, American investors are by nature trusting folks, want to believe Wall Street’s telling the truth, even though most of the time they aren’t.

The Facebook mystique is so powerful today that in our minds Facebook truly is too big to fail. Facebook will never fail, Facebook will just keep growing indefinitely at rates that would remind us of the old dot-com mindset of 1999, hail Facebook, you are too big to fail and nothing will change our minds.

And paradoxically, that’s exactly why Facebook is the ultimate economy-killer.

Could our friendly Facebook really bring down the economy?

Global economy-killer? Yes, Facebook has now been added to my list of global macroeconomic triggers (deadly unpredictable Black Swans like the dot-coms in 2000, subprimes in 200 8 that the denial system driving the collective brain of American investors will simply tune out, till it’s too late. Till a crash takes the economy down again.
And, yes, it may take years, or trigger in 2012. We watched the same kind of buildup to the 2008 crash for a few years in advance, as credible warnings were ignored. Yes folks, Facebook is that dangerous to our economy and to the global economy.

You think I’m kidding? Not one bit. In fact Facebook is now one of my top-12 economy-killing triggers, any one of which could ignite a firestorm.

These include: euro zone ills, overpopulation, China, climate crisis, Peak Oil, Fed’s cheap money, 2012 elections, austerity vs growth, high-frequency trading, extreme capitalism, and the Black Swan nobody ever sees coming till it hits, you know, a trigger like the 1914 assassination of an unknown archduke that ignited a world war.
Facebook’s user success is a classic example of investor denial

In today’s new age of behavioral economics all this extreme denial creates an illusion that misleads us by minimizing risk in our brains. Remember Treasury Secretary Hank Paulson’s classic remark before the 2008 meltdown, “best economy in my career.”

Seriously, you keep asking, does our beloved too-big-to-fail Facebook really have that kind of economy-killing power? You bet. At least one of our too-big-to-fail banks like J.P. Morgan has trillions in hard assets, hundreds of billions in capital, and huge leverage with the Fed and Treasury.

But Facebook is just the opposite, it is too big to succeed. The cash value is now in the pockets of the insiders who are cashing out with the IPO. The real “value” is in the minds of a billion friends, which is still a collective illusion that must be kept alive with future cash.

There’s a huge possibility Facebook will lose big in the aftermarket and eventually our love affair with the stock will evaporate. That’s short-term thinking, like a day-trader.
Here we’re more concerned with the big picture long-term issues, where American investors are blowing a newer, bigger bubble, a Black Swan that truly can bring down the economy, bigger than 2000 and 2008 combined.

Don’t say I didn’t warn you. Oh … I almost forgot, you can’t see or hear any warnings, you’re still in love with Facebook.

Is Facebook the sock puppet of today’s new dot-com bubble?

When the honeymoon euphoria wears off (remember Kim Kardasian’s 57 days of bliss), and reality sets in, please remember the following remarks we just got from Andrew Stoltmann, a Chicago attorney and investor advocate. And remember that 93% of the time Wall Street insiders and their pundits are happy talking and can’t be trusted, so listen to some facts and perspective from the other side:

The “Facebook IPO poses huge risks for retail investors. Facebook may have millions of users worldwide and plenty of investment sex appeal, but beyond the sizzle … I can virtually promise you there will be thousands of small investors that get burned bad on Facebook and lose money on the investment. How? Market orders like the ones so many investors made back “in the early 2000s “ by “people who made that error in … hot tech stocks at the time.”

Yes, another 2000 crash triggered by Facebook, 2012’s new sock puppet.

But Stoltmann sees through the dark veil of denial that shields most of America:

“Virtually any slip up in performance by Facebook and the stock will crater.” Yes, “crater,” as in bottom, crash, meltdown. “If Facebook is valued at $100 billion, its valuation would be 33 times its advertising revenue, compared with 5.5 times for Google. To sustain its value, Facebook would need to grow its revenues by 41% percent per year for the next five years. That is very hard to do for any company, especially one of Facebook’s size. … Even a minor hiccup in the business model could lead to significant losses for purchasers.”

More risks: Facebook “operates in an extremely competitive industry with many major, deep-pocketed rivals, including experienced, well-financed rivals like Google.” The fact is, investors forget “most of the gains people hear about when it comes to IPOs are not enjoyed by the retail investor buying the shares in the secondary market but rather the company founders and angel investors.”

Remember 2012’s hot dot-coms, Groupon and Pandora. Their shares fell “48% and 41%, respectively, from their IPO prices.”

Investors in denial about Facebook’s future as a public company

Now that $16 billion changed hands and Facebook has a thousand new millionaires, Stoltmann’s counting the days expecting “thousands of retail clients with significant losses in Facebook in the next three months even though the IPO will be a resounding success for the company. … This could get very ugly.”

Remember, behavioral economics is the “psychology of denial,” but at some point reality will set in.
How Facebook could destroy the U.S. economy - Paul B. Farrell - MarketWatch

DRUDGE REPORT 2012®


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Massachusetts subpoenas...

Selloff Nearly Turned Into Bigger Run...

Stock Loses 18% of value...

Investor Sues...

'The insiders got greedy'...

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DOOM: FACEBOOK could destroy economy?

The Stock Market Racket

May 23, 2012 by Bob Livingston

Facebook began trading publicly for the first time on May 18.

The stock market is a racket, and Wall Street is an organized crime syndicate. Last week’s initial public offering of Facebook demonstrates exactly how the deck is stacked against individuals for the benefit of the bankster mob.

The stock was priced at $38, which valued a company providing a free service at $104 billion. It made instant billionaires and millionaires out of Facebook’s founders and a number of employees. The stock was offered to large investors on Thursday afternoon. Before trading started on the open market mid-morning Friday, insiders were already selling their stock, and large investors were already planning how to make out like bandits based on information they had that others weren’t privy to.

There was a reason for it. The forecasts for the stock’s performance were cut in the hours before the release. But only select large investors and funds were informed of the cut by the IPO’s main underwriter, Morgan Stanley. Secondary underwriters JPMorgan Chase and Goldman Sachs also revised their estimates downward.

Investment firms that received advance notice of the lowered expectations called the last-minute change highly unusual. Scott Sweet, senior managing partner at the research firm IPO Boutique, said one of his major hedge fund clients learned of the revised forecast, still bought the issue, then flipped it and went short on the opening day.

The stock jumped to $45 before its plunge began. Yesterday, it closed at $31.12.

Large investors like Sweet’s hedge fund client can make a major difference in the path the stock takes and can make money by driving the stock price one way or the other. Meanwhile, individual investors are left holding the (empty) bag.

The Stock Market Racket : Personal Liberty Alerts=