Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Will You Make Money in the New Silver Bull Market ? - 13th Aug 20
Hyper-Deflation Capital Destruction And Gold & Silver - 13th Aug 20
Stock Market Correction Approaching - 13th Aug 20
Silver Took the Stairs to $21 in 2008, Took Escalator to $29 2010. Is Silver on Elevator to 120th floor today? - 13th Aug 20
President Trump Signs Additional COVID Relief – What To Expect from the Markets - 13th Aug 20
Has Gold's Upward Drive Come to an End? - 13th Aug 20
YouTuber Ads Revenue & How to Start a Career on YouTube - 13th Aug 20
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Facebook Investors Believed Forecast Revenues Would Exceed GDP of the Whole World

Companies / Tech Stocks Jun 08, 2012 - 12:02 PM GMT

By: Andrew_Butter

Companies

Best Financial Markets Analysis ArticleThere are two main elements to the litigation about the IPO. The first is about how last-minute-second-thoughts about the future earnings by an analyst should have been widely “shared”. It’s not a strong case, much of the communication was verbal and analysts change their minds all time. Sloppy management, yes…once the prospectus was up everyone should have shut up, but it will be hard to prove wrongdoing.


The other issue doesn’t have the headlines, but it goes to the core of how the sellers of shares got $16 billion and two weeks later those shares are worth $12 billion to the suckers who bought them. OK so the suckers got screwed, that’s how it works in the real world. Well…up to a point.

Section 11 of the Securities Act, makes it a violation to publish incorrect or incomplete information, even if unintentional. That means if something was false or information was incomplete, even if a moronic idiot should have known it was false, then you broke the law.

How about this for misinformation:

Remember, the people who lost $4 billion in the last two weeks were mainly unsophisticated investors egged on by pathetically unsophisticated mainstream media financial pundits…none of whom stood up prior to the IPO and said this is a crock of horse manure. You would have thought that with the “Biggest IPO ever” at least one of the incompetents would have said “be careful”, or perhaps they were taking kickbacks? 

The suckers looks, at a chart like that and they say…”Ooh look, this is my lucky-day…by 2017 Facebook’s revenues will exceed the GDP of the whole world…where can I buy?!!!”

Nice graphic, nice idea, upbeat-driven visionary talking about his impossible targets, but the reality is that is just not possible. Zuckerberg is not an idiot; he knew that chart was a big lie, so did the investment banks managing the issue.

What investors were conspicuously not shown in between the smoke and mirrors was Zuckerberg’s chart compared to the market for advertising, which up to now is Facebook’s core business, and there was no suggestion that might change.

This is it for U.S.A.

It should not be hard for a smart lawyer to convince a not-very-smart jury, that sort of information should have been provided in the prospectus. The fact it wasn’t meant that the prospectus was incomplete, that sort of information should be included in an IPO prospectus. Not that the SEC seem to care any more than they cared when Made-Off was paying out 15% a year on his hedge fund, without any rational explanation of how he achieved that.

If that chart had been put up, then Zuckerberg could have stood in front of the crowd and explained which sectors he was aiming to demolish like Google and the Internet in general demolished newspapers (and radio – not shown)….but he would have had a hard time doing that, once all the information was in place.

The simple fact of life is that advertising revenues in total are 2.3% plus or minus 0.1% of nominal GDP, that’s the cake everyone has to share, and no one can realistically hope to eat the whole cake, particularly when right now they got 2%. By the way the “Fundamental” lines by-the-way are based on nominal GDP, notice what a good fit television is, and how much newspapers were hammered.

The risks that Facebook will not be able to achieve that level of market penetration should also have been properly presented, in the section on “Risks investors should know about”, they were not.

The fact that any competent market analyst could have put that chart together in twenty minutes, counts for nothing in Facebook’s defence. In the event, even the hot-shot financial journalists were fooled by the hype and the misinformation, if they were fooled, how about ordinary unsophisticated investors that the system is supposed to protect ?

http://www.marketoracle.co.uk/Article34901.html

There were only two analysts who published anything saying Facebook was hugely over-priced prior to the IPO….as in write down on a piece of paper in plain English and put that up in the public view so you can find it using an internet search, saying…“Facebook is not worth anything like $100 billion”, and they were both in what the mainstream press calls the lunatic fringe:

http://www.marketoracle.co.uk/Article34552.html
http://www.marketoracle.co.uk/Article34724.html

The clear intent of Section 11 is that investors in public companies should be told stuff that they need to know in order to make a rational investment decision. That clearly did not happen.

And another thing, the implicit story-line in the prospectus and the road-show, was that revenues would track the market leader, in this case Google. That should have been clearly communicated, it wasn’t, instead it was left to a load of winks and half-sentences.

Anyone who remembers the IPO frenzy of the Dot.Com bubble, knows that line is a crock of horse manure.

Leading up to the NASDAQ bubble, the world was full of internet or whatever type-companies, who would put an exponential chart up on the wall as their business model, and say “well if Microsoft could do it so can we”.

That’s exactly the same story-line that Facebook put out. But Microsoft was in the selling software to the market of putting a PC on everyone’s desk, and effectively they had a monopoly. Facebook is in the advertising business, and they don’t have a monopoly…on advertising.

It was irresponsible and deceptive of Zuckerberg to put an exponential curve up to show investors.

All companies, Microsoft, Google included, grow by an S-Curve or a series of S-Curves.

Perhaps in the euphoria of starting a hugely successful company Zuckerberg didn’t understand that. But his minders, the investment banks, should have explained there is a fine line between the unbounded optimism which has driven his company to achieve extraordinary things, and the obligations of the head of a public company, to tell investors the whole story, warts and all.

It’s all very well to laugh at the investors who got suckered by the story, anyone who “managed” to buy at $44 lost nearly half their bet, and it’s not coming back.

But that’s a big part of the problem of why Wall Street does not work. The SEC should lodge a case themselves, and hammer the investment banks who allowed that crock of horse manure to be put out as a prospectus…that’s their job.

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe. Ex-Toxic-Asset assembly-line worker; lives in Dubai.

© 2012 Copyright Andrew Butter- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Andrew Butter Archive

© 2005-2019 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

6 Critical Money Making Rules