Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
The Ultimate Demise Of The Euro Union - 1st Sep 14
Palladium Price Breaks Multi-Year High Over $900 - 1st Sep 14
When Complexity Becomes Chaos - 1st Sep 14
Designer War By Default - 1st Sep 14
Islamic State or Russia? Ten Key Questions Towards Pragmatism - 1st Sep 14
Mixed Emotions for the Gold Market - 1st Sep 14
These Clowns Are Dragging Us Into War with Russia - 1st Sep 14
Marx And The Capitalist Cancer Of Overproduction - 1st Sep 14
Scottish Banks Salivating at the Prospects for an Independent Scotland of 6 Million Debt Slaves - 1st Sep 14
Small Man Europe Is Now In “Effective State Of War” With Russia - 31st Aug 14
The Unintended Blowback Of False Flags - 31st Aug 14
Tesco Supermarket Death Spiral Latest Profits Warning and Dividend Slashed - 31st Aug 14
Dow, Gold and Silver - A Last Stand, A Fake Out And A Surge - 31st Aug 14
If U.S. Consumers are so Confident Why aren't They Spending? - 31st Aug 14
Scotland Independence House Prices Crash, Deflationary Debt Death Spiral - 31st Aug 14
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14
The ISIS Menace - Just What We Need, Another War - 27th Aug 14
The Risky Business of Methane-Rich “Fire Ice” - 27th Aug 14
CFR Recommends Policy Shift that is Very Bullish for Gold - 27th Aug 14
Ukraine Standoff Signals Global Power Shift - 27th Aug 14
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

The Facebook Fiasco

Companies / Tech Stocks May 25, 2012 - 10:33 AM GMT

By: Brady_Willett

Companies

Best Financial Markets Analysis ArticleExactly whom are we supposed to feel sorry for?

Now that Facebook has done a faceplant the blame game has begun. Those that partake in this pursuit, U.S. regulatory authorities included, are dwelling in the land of futility. The real story is that had Facebook soared instead of slumped the same sleazy practices undertaken by Wall Street would have gone uncriticized, and the mob of greater fools would have been erroneously geniusized. Suffice to say, stock price should not be the determining factor when it comes to panting reality in the financial markets...and yet it is.


Even After Multiple Historic Market Busts, There Is Still One Born Every Minute

There is a budding theory that individual investors got suckered with FB - that they were somehow victimized by a Wall Street machine able to hypnotize them into handing over their hard earned dollars. Rather than lend much credence to this utter nonsense let me plainly say that if anyone wanted to buy Facebook and they didn't have a clue about the company's book value and/or some of the more basic valuation matrixes (i.e. forward P/E multiples, everything cash-flow related, etc) they are not 'investors'. To be sure, buying stocks is not something that should be undertaken by someone that doesn't have a basic understanding of corporate worth. Feeling sorry for someone that bought the insanely priced Facebook IPO is like going to the casino and patting the player that splits 10s on the back.

As for the other parties involved, Wall Street aggressively marketed FB shares and Facebook insiders apparently pushed for a higher launch price. Wow - what a surprise! The question that deserves to be asked here is whether Wall Street was creating stronger retail demand using fraudulent tactics or stronger demand was creating the required conditions for an insane IPO launch. As I remember it, the latter was more prevalent, and many analyst' warnings went unheard:

"....such warnings are falling on deaf ears as many people are drawn in by Facebook's brand name and the fact that one in seven people around the globe are on the social network. Facebook Inc on Tuesday increased the size of its IPO by nearly 25 percent and raised the target price range.

"I can't remember another IPO that got this much attention. Half the people talking about the Facebook IPO probably don't know what IPO stands for." Facebook IPO triggers retail investor craze

Finally, there are the lawsuits and upheaval regarding the withholding of revenue forecast changes that were only shared with select institutions before the IPO. On this point there may be some valid complaints given that underwriters could be in violation of laws restricting the flow of analyst views prior to the launch. Nevertheless, thinking about potential witnesses in the court of the hypothetical is a little amusing: 'I gambled on FB because I thought the company was trading at only 23-times 2012 sales. I would never have invested had I known that shares were really trading at 25-times sales...what do you think I am, an idiot?" The actual sales figures/downgrades are not really material (and the case for fraud is currently thin). Rather, the story ends with Wall Street firm(s) neither admitting nor denying guilt and the SEC or some other regulatory agency getting its greasy palms filled. Next...

Incidentally, I am all for change with regards to effectively policing Wall Street, but lets remember that analysts can call their top picks 'garbage' and Wall Street firms are allowed to make massive bets against the same products they tout to clients. Thus, it would highly naive to think that the stench of greed and sleaze on Wall Street and in corporate America is going to decrease simply because FB's IPO gutted retail speculators.

What Is Facebook Worth?

According to the prospectus, Facebook post-IPO will have $12.3 billion in shareholders' equity. Contrast this figure to the $104 billion IPO launch and even the $90 billion FB trades at today and you can quickly conclude that many years, perhaps even decades, will need to pass before the company's book value is even close to its current market cap.

The positive to be taken from the outrageous trailing P/B figures is that the company's net worth is backed by a high amount of cash (74% pre-IPO) and the recent growth rate is absolutely phenomenal (in each of the last 3-years FB has logged 120+% book value growth). A Coke-like P/B figure of say 5, even if growth does slow dramatically in the future, could still be attainable within a 3-5 year period. Is Facebook worth a long-term look at 5-times book if it continues to dominate the space and/or proves it can continue to generate strong FCF? Maybe so...

In short, the lesson from the Facebook IPO is that the stock price story is not as important as the characters in the play. If you like FB at say 5-times sales or 20-time FCF, don't feel sorry for the so called 'suckers'. Instead remember that panic selling, in most cases, is sponsored by the same crowd that chased FB's IPO. Facebook would require a very severe price collapse or many more years of supergrowth to enter an attractive realm, but stranger things have happened.

"...along with countless online forums and news articles about the IPO, they underscore the desire of ordinary people - many of whom have never invested in stocks before - to get in on the $15.2 billion share sale."

BWillett@fallstreet.com

By Brady Willett
FallStreet.com

FallStreet.com was launched in January of 2000 with the mandate of providing an alternative opinion on the U.S. equity markets.  In the context of an uncritical herd euphoria that characterizes the mainstream media, Fallstreet strives to provide investors with the information they need to make informed investment decisions. To that end, we provide a clearinghouse for bearish and value-oriented investment information, independent research, and an investment newsletter containing specific company selections.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014