Saving Face

The long awaited IPO of social media giant Facebook has finally happened and so far, it’s getting bad reviews. First of all, NASDAQ’s IPO listing software had a major fail and was not reporting trades accurately on opening Friday. This caused brokers and traders to not know if they had purchased shares, or how many, and at what price! It was hours before they gained this information and had to sort through it all as they were more than likely trying to continue trading.

I know what a pain in the ass this is because I have worked in the industry doing trade support and when the system you are using goes down or whatever glitch happens, suddenly the phones start lighting up and all the brokers are calling in saying “Hey I just bought this but I have no confirmation.” Or “I sold this at $50, they only gave me $49.” Trust me, this is maddening, because sometimes these guys didn’t enter their order like they thought, and the lowly assistant gets the task of going back and finding the exact moment the trade happened and deciphering what went wrong and then trying to prove it to the trading agency.

Maybe if all these talented engineers put their efforts into stock trading software instead of building the next cool social network, Facebook wouldn’t have had that issue. Ironic, huh?

But no, we feel the need to hype Web 2.0, the social integration that promises to let everyone know you farted and how bad it stinks. Honestly, can you tell me what Facebook does? Sure everyone is on there. Your mom is there now. My mom is there. Everybody we went to high school, jr. high, and elementary school with is there. It’s like a great big party and we’re all there together, and I know what you like, and you know that I’m following Gotye, and I know what you had for breakfast, and I can stalk my ex and future girlfriends and isn’t it just so much fun? Great, don’t let me spoil your party, but tell me about the business side of this company.

I’ve seen how the financial world works, and I can tell you how it’s a rigged game for the major players, but there are some fundamentals to looking at a company that can tell you where it’s going. Do you remember widgets? Widgets are fictional units used in business class to represent a product a company sells. Sell ten percent more widgets each year and your company is growing. The closest thing Facebook has to a widget is you. Depending on your age, gender, kids, likes, etc, you represent information that advertisers use to manipulate companies into paying money for. But honestly, when was the last time an ad on Facebook, or even something somebody posted on Facebook, caused you to go out and buy something? Facebook is very popular, I’m not taking away from that but I don’t see it’s value. I like the Condescending Wonka Meme Generator but I’m not going to buy stock in it. BTW thanks for introducing me to that SJ.

Image

Occupy Wall Street has been a big issue for close to a year now, and there are still groups and protests continuing. I don’t agree with many things about it, but I do understand their frustrations. How about Occupy Madison Avenue? Mad Men like Don Draper have been pushing us to buy, buy, buy, and consume yet we don’t fault them for greed, debt, and a struggling economy. Furthermore, financial markets, banking, insurance companies were all developed before the birth of the U.S. and are deeply ingrained in society, so pointing the finger at one street in Manhattan is slightly misguided.

The biggest winners in this latest game are the underwriter Morgan Stanley, because they collect around 1% of the share’s value for bringing the company to market, of course the Zuck with all the shares he owns, everybody who works for Facebook that has significant shares, and David Choe, the graffiti artist who painted the first Facebook office seven years ago and was paid with a reported 3.77 million shares.

If you’re some member of the public that thinks they will make money buying Facebook stock, good luck with that. That’s exactly who the current shareholders are hoping will propel them to actual riches instead of paper riches. Paper riches you say? Yes, own a stock and watch its price rise and fall and your net worth with it. But it means nothing in spending terms until you sell it and get real cash money. The real test will be when the holding period for share holders expires in a few months and Facebook employees and David Choe scramble to cash in for whatever value is left on their stock. Early indications are not good because the second day of trading has closed with shares at 34.02, or 10.99% below the initial offering price of $38. If you remember Internet bubble 1.0 and how great stocks like AOL went crashing down as people made the revelation that it wasn’t the gatekeeper to the internet after all, well, big sell offs have a way of becoming avalanches. But don’t listen to me, take Randolph and Mortimer’s advice.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s