This isn’t going to be a popular thing to say, but it needs to be said. So here goes…All this whining and umbrage about Facebook’s IPO is ridiculous.
When are people who voluntarily speculate on stocks finally going to take responsibility for their decisions?
On Thursday, Facebook priced its IPO at $38.
On Friday, the stock opened at $42, a 10% jump, and spent most of the day trading above $40. Then, thanks to heavy support from the company’s bankers, the stock closed just above $38.
In other words, even after the sharp selling at end of the day, Facebook IPO buyers were better off than they had been the day before. And if they were among those who took the abundant opportunity throughout the day to sell stock above $40, they locked in a nice overnight gain.
But to hear people bitch, you’d think they’d been swindled out of their life savings.
They were Mark Zuckerberg’s cash cows.
Hordes of everyday New Yorkers played the fool yesterday to Wall Street fat cats and Facebook insiders, who used a bloated stock price to milk them of billions of dollars during an overhyped IPO.
With a $38-a-share price tag and forecasts for a 10 per cent jump, mum-and-pop investors blindly bought in with dreams of instant riches that never came true.
Meanwhile, the social network’s hoodie-wearing CEO finished the day with a net worth of $19.25 billion. The average Facebook employee saw their on-paper wealth shoot up to $2.9 million.
Wow, sounds horrible.
And what happened, exactly?
Apparently, IPO buyers got less free money than they expected to.
The hope, presumably, was that–no matter where Facebook’s IPO priced–the enormous demand from suckers would cause the stock to “pop” when it started trading–thus allowing the shrewd IPO buyers to flip their shares at a profit only hours after buying them.
Of course, that’s exactly what the IPO buyers were given a chance to do. For about 4 hours yesterday, the IPO buyers could have locked in an instant 5%-10% gain. But apparently this wasn’t the 50%+ gain they were looking for.
Well, it’s time for people to grow up.
The $38 that Facebook IPO buyers voluntarily paid for the stock–emphasis on voluntarily–was already an extremely rich price for a company with decelerating revenue and only ~$0.35 of earnings last year. The only way these buyers were going to get a big “pop” from that price was if other investors seeking the same instant riches were even more aggressive and reckless than they were.
And it turned out that those even-more-aggressive-and-reckless traders stayed home.
So Facebook IPO buyers only got their 10% instant gain.
And a lot of them, apparently, did not take the opportunity to lock in that gain. Instead, they held on to the stock, either hoping that it would trade higher (likely), or because they are actually long-term investors.
And now, with the stock looking as though it will crash through the underwriters’ support and the IPO price on Monday, the IPO buyers are blaming their decision to hold onto it on Facebook, too.
So, what exactly were you looking for, folks?
Even more free money?
Just for pressing “buy”?
In what other normal universe would you ever expect that?
Facebook could not have been clearer about how it was going to emphasise the long-term at the expense of the short-term, and that’s exactly what it did in choosing its IPO price. Facebook now has a lot more cash at its disposal than it would have if it had lowballed the IPO just to give buyers a “pop.” That cash is valuable to the company, and it will help the company create more value over the long-term.
In the weeks leading up to the IPO, moreover, many analysts screamed from the rooftops that Facebook’s stock seemed extremely expensive. We even went to far as to call it “muppet bait.”
And when the stock opened on Friday at merely an extremely expensive price, instead of a ludicrous one, we were relieved. Because it meant that millions of investors weren’t buying it at absurd prices in the after-market… and thereby setting themselves up to get creamed when the hype faded.
But apparently those who did buy the IPO were expecting to get something for nothing. (And not just “something.” They were expecting to get a lot for nothing.)
And when they didn’t, they started taking their frustrations out on Facebook.
Trading stocks is a risky business. Perhaps it’s time for those who voluntarily choose to do it to acknowledge that.