The "average Joe investor" stories seem weirdly out of place, particularly for a Bloomberg piece. I guess it's a shallow attempt to engender sympathy, which is odd because I have precisely zero sympathy for either of them.
Lots of people (myself included) had been saying that Facebook was overvalued pre-IPO. I don't say this as any testament to any investment acumen I purport to possess (on the contrary, I largely suck at particularly short term share trading). What I do mean is that as an outsider with some cursory research and common sense, this was entirely predictable.
The only unknown with the IPO was how irrational the market would be and I'm glad to see it wasn't.
The people who say "look at the eyeballs they have; the sky is the limit" are the last people you should take investment advice from. Facebook had (and has) two primary sources of revenue: advertising and virtual goods. Valued against similar companies it was overvalued. And still is (IMHO).
I think this piece overstates that Facebook was attempting to hide things here. It's natural that any IPO will try to disclose as little as possible and try to be as positive as possible while stil being truthful and accurate.
Personally I may think of buying in if its gets down to $10-12.
Even so, Facebook is an extremely risky investment. Instagram is a cautionary tale here: from nothing to existential threat that you need to buy-to-shelve for $1 billion in two years... well, I guess it doesn't take much to threaten Facebook.
> Lots of people (myself included) had been saying that Facebook was overvalued pre-IPO.
You could have shorted the stock or traded options.
There was a fair bit of uncertainty because the average Joe, his family and friends all used FB. Many investors feared that the stock would be driven by sentiment rather than rationality. If the stock went to 50, it would not have surprised me.
Like you I didn't support the high IPO valuations either but I still would love to own the stock with minimal downside risk. As would a lot of other people out there. FB has a lot of appeal.
At $10 the company will have a market cap of about $20 billion, which is pretty low for a company with a billion monthly active users. If you discount that, you are probably discounting the bigger picture.
At some point Apple had tremendous unrealized potential. The idea that it could get into phones and do really well wasn't hard to digest. On the contrary, it seemed like an obvious move.
FB has similar unrealized revenue potential. It could start charging $X per month to businesses with > Y fans. It could offer premium dashboards + analytics or similar features. There is no shame in premium, I am not sure why they only do advertising and commissions but my sense is that currently they are focused on growth and building a moat around their business.
I don't own the stock and I don't care if it goes up or down but your post seems be discounting the company's potential.
Its really difficult, if not impossible to short stocks after IPOs and completely impossible to have shorted at the exact IPO price arranged prior to the IPO. This is a brief article on why:
It is also not possible to buy put options prior to the IPO as there are some guidelines that must be met prior to being able to buy puts. On Facebook specifically, they were not offered for almost 10 days after the IPO:
> Lots of people (myself included) had been saying that Facebook was overvalued pre-IPO.
You could have shorted the stock or traded options.
Before you short any stock, it is wise to keep in mind the maxim "Markets can remain irrational a lot longer than you and I can remain solvent". This isn't really a problem on the long side (sans margin), but is a real problem on the short side.
That's the main reason I didn't short it - so many people seemed so invested in the IPO being a success, that I thought it would turn into a self-fulfilling prophecy. I'm surprised it fell so far and so fast; I think the trading glitch on NASDAQ took the bubbles out of the champagne for so many people that fiscal reality set in a lot earlier than it would have otherwise. Of course, going on the market at $38 didn't help, but their pricing strategy was sort of constrained by activity on Second Market.
This. You can't even safely short a stock that you're certain will crater sooner or later, you also have to know when, and how high it could go first. You're betting you know just how irrational the market is.
At $10-$12, that's effectively saying that the company has the potential to grow its profits by a factor of three or four. Then it would have an industry-standard P/E ratio, roughly on par with Apple's. This sounds about right to me.
If you were to actually discount the company's future potential, then an industry-standard P/E ratio would put it at $3-$4.
[Edit: I'm not a trader, but if I were, I'd be shorting down to about $18, and buying at $9.]
At $10 the company will have a market cap of about $20 billion, which is pretty low for a company with a billion monthly active users
I think you're making the mistake of backing into the valuation based on an arbitrary statistic they tell you is important. Who cares how many monthly active users they have if they can't make any money off of them. They could have six billion people using their service, but if they can't generate revenue from them I wouldn't pay $5 for the stock, regardless of how much potential they claim they have.
If all those users have the potential to generate massive revenue, fine... then prove it. Then maybe I'll buy the stock, but in the meantime here's no reason to rush in based on promises and "potential".
Lots of people (myself included) had been saying that Facebook was overvalued pre-IPO. I don't say this as any testament to any investment acumen I purport to possess (on the contrary, I largely suck at particularly short term share trading). What I do mean is that as an outsider with some cursory research and common sense, this was entirely predictable.
The only unknown with the IPO was how irrational the market would be and I'm glad to see it wasn't.
The people who say "look at the eyeballs they have; the sky is the limit" are the last people you should take investment advice from. Facebook had (and has) two primary sources of revenue: advertising and virtual goods. Valued against similar companies it was overvalued. And still is (IMHO).
I think this piece overstates that Facebook was attempting to hide things here. It's natural that any IPO will try to disclose as little as possible and try to be as positive as possible while stil being truthful and accurate.
Personally I may think of buying in if its gets down to $10-12.
Even so, Facebook is an extremely risky investment. Instagram is a cautionary tale here: from nothing to existential threat that you need to buy-to-shelve for $1 billion in two years... well, I guess it doesn't take much to threaten Facebook.