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Facebook stock nosedives: No sympathy for foolish stockholders

May 21, 2012

The legacy of Facebook’s IPO (Initial Public Offering) will be one in which early investors (including Facebook employees) and underwriters like Morgan Stanley created a bubble, as I noted nearly a year and a half ago, to sell when expectations were artificially high.

Some will say that this was their right as early investors—they deserved to reap the profits. To that I say, bollocks. Sure, early investors and underwriters, the people who saw something in Facebook early on, are entitled to a nice pay day, but not when they are selling shit painted with gold.

Perhaps that is too harsh a characterization of Facebook. To Facebook’s credit, the now public company is approaching 1 billion users, it’s a treasure trove of user data that can be sold to advertisers, and Mark Zuckerberg & Co clearly have visions of glory for what the company can be, not what it is (which appeals to investors). Admittedly, Facebook is a great place to share videos, music and news, as well as stay connected with friends and family.

But $104 billion for this social media ecosystem? Something stinks to high heaven.

Facebook shares closed at $38 on the day of its IPO, but that’s because Morgan Stanley and other underwriters buoyed the stock so it wouldn’t close below its opening stock price. Now Facebook stock is trading at $33.56 per share, down more than 12%. CNET’s Robert Chang calls this a “sobering reality for anyone caught with Facebook shares on Friday,” but is this turn of events really sobering?

It’s possible Facebook will rebound with a decent stock price but it is most certainly not a $104 billion company. That valuation is mere artifice created by a matrix of hype, delusion, lies, Wall Street machinations, greed and Zuckerberg’s attempt to placate both early and late investors. He had to build Facebook into something beyond its most natural state of existence, and it was written in his faux-visionary posturing.

The debate about profitability has been going on since Facebook was created, and only fools and charlatans could pretend that it could deliver profit on the order of Apple, Microsoft and Google. We are now simply seeing that there aren’t enough fools to buy into Facebook’s dream world.

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