The Facebook $FB “Fiasco” – Am I Crazy?

avatar By: IS
Date posted: 05.25.2012 (5:00 am) | Write a Comment  (11 Comments)

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Wow, I have to admit that I did not expect the Facebook IPO to go anything like it has gone so far. The initial valuation of $104B was close enough to what I expected but I certainly did expect some kind of pop. Then, last Friday afternoon, when Morgan Stanley seemed to be using billions of dollars to defend $FB from going under the $38 IPO price, it looked all but certain that the stock would fall. Which it did on Monday. Not a big surprise, Morgan Stanley wasn’t going to keep buying stock for much longer.

How Did We Get Here?

The big question though for me is how we got to the point where buying Facebook was seen as “stupid”, as the new “Pets.com” purchase, the clear sign of a bubble. I have been looking at the media and it becomes a bit more clear when you look at the headlines.  Just look at all of these numbers from ZeroHedge:

There are tons of others that discuss how Facebook’s growth is slowing down because it is being increasingly seen on mobile devices where less ads are currently being displayed. the underlying arguments are always the same. There is little to no growth left for Facebook both in terms of users and advertising dollars.

Am I Insane?

Sometimes I’m sure you feel like you believe something so strongly that everyone else seems to be missing the big picture. I feel that way. Like all of those who are criticizing Facebook are just not getting it. Not that they’re not smart but they just don’t see the whole picture. One has to ask himself.. what is more likely: that I am right or everyone else is? I’m not Warren Buffett by any means but I still feel like I’m decent at this stuff? So what am I missing?

I mean come on, how in the world does GM stopping its $10 million annual advertising campaign mean that Facebook advertising does not work? It also will be making huge cuts in its Super Bowl advertising, is that dead too?

Facebook’s Future Growth Will NOT Come From

-hundreds of millions of users signing up
-Facebook suddenly adding big flashy logos on its website to gain more ad dollars
-Converting mobile users to become desktop ones
-etc

Facebook’s Growth WILL Come From

-Its unique gateway to connect brands with users
-Its unique relationship with millions of companies that advertise their Facebook page instead of their own website, believing that is where their best opportunity resides
-Its power in knowing users better than anyone else (even Google) and placing the most customized ads
-Its  upcoming services such as ad services, its virtual currency, etc. Many others can launch such products but no one is better placed to get it done or partner with those who do

Give Me A Break

So everyone in the world loves Facebook that they connect to it from all of their devices including their mobile phone. How in the world is that BAD news? It’s not. Facebook is simply focused on growth (as it should) so putting a whole team on monetizing mobile makes no sense. Keep the experience unique, get more users involved and in the end, it will pay off.

The One Thing That Has Made Me Pause

The only valid criticism I have seen is that Facebook has apparently warned that growth guidance had been overestimating what is currently happening which could mean slower growth in the next few quarters. There is a lot of speculation about this because Morgan might be in trouble after warning some big clients without telling their other smaller ones…

Sorry For The Rant

I know I might sound a bit upset here but I’m not, I’m really not. This will actually make it cheaper for me to buy Facebook $FB which i had fears would not be possible.  So please tell me, do you think I’m crazy? It’s not like Facebook  is this company with no revenues or profits, with no plan, etc? And by the way, this is also exactly why I try to wait before buying a recently turned public stock. Things can turn out so different from what we initially expected.

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11 Comments

  1. Comment by Zavi — May 25, 2012 @ 8:10 am
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    You are not crazy lol I feel disappointed with the whole FB saga! Anyways, we’ll see how all of this goes!

    Question: do you think that brokers roadshows should be online and public?? So there are no conflicts in warning some clients over others?

  2. Comment by IntelligentSpeculator — May 25, 2012 @ 9:56 am
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    @Zavi – In an ideal world, yes absolutely, but that seems very difficult to imagine, with these big companies trying to give their best clients more information.

  3. Comment by Stephen — May 26, 2012 @ 8:30 am
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    Did you get any yet or are you waiting for the price to drop even more?

  4. Comment by Ken — May 26, 2012 @ 12:24 pm
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    I sure hope you don’t buy FB. Here are my reasons:

    1. Facebook’s fair value is 13.80. See this article by the estimable Mark Hulbert:
    http://www.marketwatch.com/story/facebooks-stock-should-trade-for-1380-2012-05-25?link=MW_story_popular

    2. Facebook is a poorly managed website that is not user friendly, and they are constantly changing the rules without notice. These kind of companies always fail eventually, even though they seem to dominate the market. Remember AOL?

    3. Technically, if you consider the secondary market plus its Nasdaq trading, FB is in a big bear market.

    4. The CEO is still too young to manage such an enterprise, and needs to hire someone with more experience. This is the path that made GOOG successful.

    5. Short selling is not possible at this moment, because there no options or shares to borrow. Once it is allowed, it should hurt the stock price.

  5. Comment by Ed — May 27, 2012 @ 8:49 pm
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    I figured the FB IPO would be a little overblown, when my wife, who doesn’t follow stocks at all, mentioned to me a few days before, that she had heard about this big company selling stock and that we should look into buying some “Googlebook”.

    I kind of expected it to go the other way and pop higher then maybe sink. The above scenario made me think that with all the media attention that everyone even those who shouldn’t be buying it would.
    I have to admit, I haven’t seen any other social media platform that has *every single company* on FB that can be liked. Liked our sandwich? Then like john johns on FB….etc etc

  6. avatar

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  7. Comment by Bret @ Hope to Prosper — May 30, 2012 @ 12:00 pm
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    I agree with Ken and Mark Hulbert, that Facebook was worth about a third of what it sold for at the IPO. The $100 billion was so ridiculously over-valued that it was bound to crash at some point. The sneaky earnings cuts just made it happen sooner, instead of later.

    Just because Facebook is popular doesn’t make it a sound company or investment. They will have to do virtually everything right with solid earnings growth to be worth a fraction of what it sold for. If earnings tank or users flee, it could quickly become worthless. MySpace was recently liquidated for only $35 million. That could easily happen to Facebook.

  8. Comment by IS — May 31, 2012 @ 4:05 am
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    @Bret – It could but some (including myself) think Facebook has a more solid business and product. Many said that Google would be surpassed as a search engine during its IPO too, that it would become the next Altavista, Yahoo, etc.

  9. Comment by IS — May 31, 2012 @ 4:18 am
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    @Ed – No doubt, that is a big warning sign:)

  10. Comment by Ken — May 31, 2012 @ 9:29 am
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    More Facebook bearishness from my favorite blogger, who main blog is http://www.coyoteblog.com. He also blogs for Forbes magazine:
    http://www.forbes.com/sites/warrenmeyer/2012/05/31/one-businesss-love-hate-relationship-with-facebook/

  11. Comment by IS — May 31, 2012 @ 5:17 pm
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    @Ken – Thanks for sharing, I will take a look:)

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