The Banks’ Facebook Sell Is Fleecing Investors

May 18, 2012

The Banks’ Facebook Sell Is Fleecing Investors

Some investors got fleeced today by the big banks that sold them Facebook shares.

Facebook, a virtual service essentially at the end of its growth phase, was valued $106 billion in today’s IPO. That is 112 times its earnings. Goggle is valued at 19 times earnings and Apple at 14 times. Both too high in my view but they both still have more chance to grow further than Facebook.

Facebook claims to have 800 million “active users”. I very much doubt that number but the my definition “active user” is certainly a different one than the guys who sell the Facebook shares propagandize. But anyway – the company is now valued at some $100 billion. With 800 million users that is $116 per user. How many ads will a user have to look at to justify that value?

There is of course the possibility that Facebook may use the fresh money to buy some reasonable valued, actually productive company and eventually turn that into a steady revenue stream. But the chances for that are low. It is more likely that it will go the way of Netscape, Napster and AOL and other dot com dodos.

BTW – I have some extraordinary tulip bulbs I’d be willing to sell for the right price. Excellent and seldom colors. Anyone interested please leave me a note.

Posted by b on May 18, 2012 at 17:58 UTC | Permalink

Comments

$106 000 000 000 might be a tad over-valued indeed.

Posted by: Alexander | May 18 2012 18:16 utc | 1

“Goggle is valued at 19 times earnings”

Posted by: spelling mistake | May 18 2012 18:34 utc | 2

i ignore ads of FB as anywhere

Posted by: brian | May 18 2012 18:45 utc | 3

you are old fashioned, nobody nowadays buys shares long term,
what you do is you bet on a hype and try to sell faster than the rest.
that is what an IPO is about,
or you sell short
http://en.wikipedia.org/wiki/Naked_short_selling
stock exchanges are far removed from economic reality, maybe – talking of tulips – they always have been

Posted by: somebody | May 18 2012 19:02 utc | 4

So who is buying Facebook? I can’t imagine anyone other short-term. But that implies that others further along are ready to buy.
By the way, you should do a piece on François Hollande. He looks promising, I just hope he doesn’t finish like Obama. For the moment he seems to understand the situation, coming into power at a moment of crisis. Will he have the strength to do the necessary?

Posted by: alexno | May 18 2012 20:23 utc | 5

Do you have any black tulips, b?

Posted by: blowback | May 18 2012 21:19 utc | 6

I hate Facebook.com, especially its user interface. I know plenty of other people with the same sentiment. I’m told that a crowd used to flock to Myspace.com but then abandoned it for Facebook.com, and then Myspace’s stockmarket valuation crashed. I earnestly hope the crowd that’s currently congregating a Facebook will some day find better venues for themselves.
Even if they don’t, I agree with ‘b’ that Facebook’s valuation is nonsensical. But the word ‘fleece’ used by ‘b’ is the wrong word. The banks merely sell the stock at whatever price the stock-buying public will pay. Even if individual bankers themselves think the price is crazy, they are just doing an honest day’s work selling tulip bulbs at market price.
This story fits in nicely with the recurrent theme in ‘b’ that popular wisdom is something you have to suspicious of.

Posted by: Parviziyi | May 18 2012 21:22 utc | 7

Heh, Brian @ 3 — I ignore Facebook. Avoid it like the plague.
Zuckerberg wants all our info –everything; well, no way. But, alas, Google, whose founders said “Do no evil,” or close to that, now wants to control all my info as well. And both seem quite willing to give my into to not just businesses, but to the government as well…. Grrrrr.
Looking for a new email site.

Posted by: jawbone | May 18 2012 23:23 utc | 8

I don’t know enough about Facebook to express an informed opinion about it. However, my uninformed opinion is that Facebook sounds like a great place for the self-obsessed to congregate.
I’m mildly curious to hear how many Zionists are NOT on Facebook.

Posted by: Hoarsewhisperer | May 19 2012 3:22 utc | 9

@9
have you seen their internal logo? 😀
btw, i have never been on FB, nor MS, nor am i zio.

Posted by: Proton Soup | May 19 2012 3:29 utc | 10

Think of it as $100+ billion that could otherwise be doing something constructive for the world.

Posted by: Biklett | May 19 2012 4:07 utc | 11

I think not overvalued. If it can sell detailed personal information on half the presumed users, to advertisers or governments, which it will, it is probably undervalued. They buy it once. $116 per user amortized over five years, ten?

Posted by: Anonymous | May 19 2012 4:29 utc | 12

a little flashback: Zuck calls users “dumb fucks”
and, srsly guise, does this logo really make you think of Scientology?

Posted by: Proton Soup | May 19 2012 4:35 utc | 13

no problem to get you black tulips
http://istanbulstreets.wordpress.com/2007/07/13/black-tulips-pink-from-istanbul-tulip-festival-2007/
Anonymous, 12, maybe, I doubt the detailed personal information though.
Facebook is small-talk, plus information on people’s movements you better get by recording mobiles and be sure governments do just that. And mobile conversations are bound to be more interesting.
I find it interesting that this definition by facebook itself can still be found in Google, however, it seems to be erased from facebook’s pages
“People are considered active users if they have engaged with, viewed, or consumed content generated by your application or Facebook Page.”
it is a huge difference for an advertiser if people talk about something or a looking for something.

Posted by: somebody | May 19 2012 6:58 utc | 14

When the news came out, the one thing that came to mind was the dotcom boom. We all know how that turned up.
Here’s how the deal works.You pick up a thing(anything) and then you hype it up for a long time until it becomes a trend. The Western psyche is so easy to manipulate. They’ve been fed a constant diet of BS for so long that it’s hard to tell real truth from BS. How could it be, that something that can only be considered a gossip tool for anybody and nobodies could be rated in the billions of uncle scam’s greenback? And it gets better.You get suckers to buy it, too.
You see, it’s tough economic times and people are looking for the easiest way to make the quickest buck.Never underestimate the human instinct to satisfy his never ending greeeeeeeeeed. If buying facebook shares makes the cut, so be it! The formula here is: you put 100 bucks in and get 1000 bucks out by doing NOTHING – just sit back and watch your money grow(it’s called “investment”). The ancient day economists will be proud and rolling in their graves as we speak. The laziness in society today encourages this kind of stupidity. Sheeple consider it as a better “alternative” to actual/real work. No doubt, some will be millionaires overnight and many will end up getting “facebooked”.We’ve been here before, folks..Watch this space.

Posted by: Zico | May 19 2012 7:25 utc | 15

truth is from a certain amount of money onwards people do not know what to spend it on …

Posted by: somebody | May 19 2012 10:46 utc | 16

@16 – that is correct. it’s now the creation of fictitious value out of thin air. ghost bubbles. a magician’s trick. david copperfield is envious, or should be.

Posted by: wenis | May 19 2012 13:34 utc | 17

The FaceBook hype was doomed to fail.
Watch for share price to sink low after ‘banks, mega investors, speculators’ stop intervening. -> They help along because they want to encourage the idea that investing is fantastic and technological progress is a wonder, in short they want to fleece the public, and everyone knows about FB and isn’t against it..
Facebook doesn’t make any real money, e.g. far less that Google per user. It’s number of users stopped growing a while ago. To earn, it will, mark my words, go over to some paying services, which will cheese off users. It will indulge in more aggressive advertising, but the payers will soon figure out that only a minimal presence is fine (it looks good, keep the hype up), but the return is not there.
FB will buy up some small innovative cos. and add bells and whistles that will be disorganized and won’t specially please users. It will maybe (I don’t know how that works) try to sell data on its users, it probably does that already.
FB will struggle to get into phone apps, having missed the boat there. Its ‘privacy’ issues will trickle down to the public. It has already lost the tech savvy (manipulation, privacy) and those ppl have influence.
FB will keep a huge amount of users, who love it, are used to it, and ignore indignities, and don’t know where else to go, anyway that is trouble, etc. But these users are not profitable, and that would be fine if FB just wanted to survive and serve, which is not the case.
That’s what I see.

Posted by: Noirette | May 19 2012 15:34 utc | 18

Yeah,who pays these billions anyway?
US,in one way or another.
What ever happened to widgets?
Nothing from nothing is nothing.

Posted by: dahoit | May 19 2012 15:39 utc | 19

@alexno So who is buying Facebook?
Index funds will have to buy it as FB is now part of major indices.
There are many many billions in index funds.

Posted by: b | May 19 2012 17:15 utc | 20

@19 – and if you think about it, they pay for it with nothing. money is just a construct that can, and is, created out of thin air. it only has value because the delusional believe it has value. today, more than ever, it’s bits and bytes in the encoded memory of electronic devices assumed to have a value that doesn’t really exist outside of misperception.

Posted by: wenis | May 19 2012 17:49 utc | 21

@b
Index funds will have to buy it as FB is now part of major indices.
Human or computer trading?
Yesterday, the price started high at $42, and then levelled off close to the asking price of $38. The asking price seems high, and one wonders who sees money to be made out of it, computer or human. A decline seems possible.

Posted by: alexno | May 19 2012 18:53 utc | 22

One imagines that the majority of shareholders in Facebook see themselves as gamblers rather than investors. I doubt that many “investors” would buy shares with a P/E ratio of 1% when there are so many alternatives with a higher and more predictable return on investment/income stream. Gamblers, on the other hand are probably unaware or unconcerned about P/E.
The potential for a strategic insider trading, or other, mishap especially in over-priced hi-tech stocks, is virtually unlimited in range and depth. I’m unaware of any hi-tech (.com) stock crash in which EVERY stake-holder lost his/her shirt.

Posted by: Hoarsewhisperer | May 20 2012 5:00 utc | 23

Until Nov 2012, gamblers and short term investors would be better off buying shares in the M-I Complex and/or Big Oil than Facebook.

Posted by: Hoarsewhisperer | May 20 2012 5:20 utc | 24

LA Times is already reporting it as an “Epic Fail”

Facebook may yet be overpriced. Morgan Stanley and its fellow underwriters of the IPO undoubtedly spent millions of dollars, maybe hundreds of millions, propping up the stock Friday so it wouldn’t fall below the $38 offering price, as that would have been a huge embarrassment. No one knows how long they’d continue to do so.
Additionally, in about a week the shares become eligible for short-selling, which could place more pressure on the price. A few months from now, insiders prohibited from selling their own share will have the green light, and millions more shares will enter the marketplace. The question in coming weeks may no longer be how high Facebook can soar, but how low can it go?

Posted by: Monolycus | May 20 2012 12:17 utc | 25

Right, Monolycus, or LA Times.
The ban on selling for employees / insiders and the like is 6 months afaik. That is standard.
After that, when the share price will already have sunk to some kind of doldrums, they will all want to sell as rapidly as possible.
The whole scene is supposed to keep investors hopeful and participating, draw in the suckers, uphold the myth of tech innovation, wizz kids, US creativity, pizazz, etc. The last gyrations of the dot com bubble.

Posted by: Noirette | May 20 2012 15:03 utc | 26

whoever is called Romney’s economic brain, the jackass hyping his book currently; talks about the great innovation of the market. He regularly cites “new” businesses like Facebook and Twitter. He seriously compares GM to FB, and tweets. Cause, these low tax advocates don’t know anything about building a business. Raise the tax rates, and this capital lite business will be seen for what it is. Raise the rates and you build capital intensive production, like GM and GE of old. But, look what those firms have done since Reagan; moved aggressively into finance. When tax rates are high, the incentive to divert profits into deductible avenues increases; deductible avenues like, employee benefits, hiring, expansion, innovation, any capital intensive expansion. Further, these capital intensive projects are “depreciated” meaning their value is written down over time. This represents a literal income stream for these firms. Once a capital plant is fully depreciated, you’ll see it sold, rebuilt or some new investment. This drove our economy in the post WW2 era, we threw it all away with Reagan.

Posted by: scottindallas | May 21 2012 13:56 utc | 27

As expected:
Facebook shares tumble as underwriters desert stock

Posted by: alexno | May 21 2012 22:15 utc | 28

Facebook Tumble Means Morgan Stanley Gets Blame for Flop

The shares closed at $34.03 yesterday, and the stock dropped 4.5 percent to $32.50 at 12:07 p.m. in New York.

Nearly a 19% drop from the IPO $38 price tag. The “investors” lost $3 billion in two days.
It was a huge rip off …

Posted by: b | May 22 2012 17:07 utc | 29

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