Don't be a Facebook IPO idiot

Don't be a Facebook IPO idiot

Summary: Stick your money in your mattress not in the Facebook IPO. It will be the smarter move.

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The Facebook Web site can be cute, the Facebook IPO is ugly as sin.

The Facebook Web site can be cute, the Facebook IPO is ugly as sin.

First, I am not a stock market maven. I don't own a single share of any technology stock. So, when I say only an idiot would buy into Facebook's $104-billion IPO tomorrow keep that in mind. On the other hand, I've been covering technology and the business of technology for closing in on 30-years and when something starts to smell as badly as the Facebook IPO does, I think I can tell when a stinker is a stinker. And, folks, Facebook smells to the high heavens.

First, take a long hard look at the Facebook IPO's S1. One of the things I've learned along my way is how to read SEC reports. The risk factors in Facebook's S1 both in dependence and growth are downright scary.

It's a long, long list, but one that really caught my attention was number 22: 22.”Our CEO has control over key decision making as a result of his control of a majority of our voting stock.” That means Mark “Mr. Hoodie” Zuckerberg is going to large and in charge of Facebook. No stockholders, no board can stop him from doing whatever he wants with Facebook.

OK, so Zuckerberg, Facebook;s co-founder and CEO probably isn't as bad as he was shown in The Social Network

But, you know what, when I look at him I don't see anything much except a guy who had one great idea, or took one great idea from others anyway, and ran with it at just the right time. It's not that I think Zuckerberg is too immature just because Wedbush Securities analyst Michael Pachter said Zuckerberg wearing a hoodie at an important business meeting was “a mark of immaturity.” Tech CEOs often don't dress well. Bill Gates in his early days comes quickly to mind. But, what I think is telling is that Pachter was the first analyst to give Facebook a buy rating, I think, “Yeah, Zuckerberg may be worth billions but would I trust him to make billions for his shareholders? “ No, no, I don't.

Forget about his clothing, look at his last big move: Buying Instagram, a cute, popular photo sharing site for... a cool billion plus in cash and stocks. Facebook purchasing Instagram is a waste of money.. Anyone with a clue can program an Instagram clone. Facebook could have built their own from pocket change. Is this someone I want leading a company I've invested in? I think not.

Is Facebook too big to fail? Oh please. Yes, Facebook is incredibly popular, so what? Back in the day MySpace was hotter than hot. A lot of people thought News Corp. got a great deal when they bought MySpace for $580m in July 2005. They ended up selling it in July 2011 to a private equity company for a monstrous loss. Going farther back, remember when AOL was The way to the Internet and its Time-Warner deal looked like the best move ever? I was there for that deal too, and AOL/Time-Warner ended up being a total flop.

Like MySpace, Facebook is depending both on its existing customer base and the ability to find yet more customers and advertisers. Good luck with that. I think Facebook has saturated its market. Seriously, how many Internet users are left out there that don't already have a Facebook account?

I also wonder just how long Facebook's users will put up with its constantly changing interface and privacy controls. I still use Facebook myself, but only because it's where many of my non-tech friends hang out. If another social network came along that caught fire—Google+? Pinterest?--I think Facebook would start losing users in a hurry.

As for advertisers, well, did you know General Motors just pulled their 10-million dollar Facebook ad budget? I think they see Facebook jumping the shark.

OK, you say, so maybe Facebook isn't a smart long term bet, but it's still great for the short term? Really? Consider first that many of the people who are making short bets on Facebook already have their share of the pie. Many insiders have already announced that they'll be selling their shares and taking their cash out tomorrow. They'll be getting their money from every fool buying Facebook shares tomorrow.

Consider too just how well Web IPOs have done in the past. To quote my colleague Don Resinger from CNET: “Out of the top ten Web IPOs of all time, only Google can be called a success. The other nine companies -- including recent (if temporary) darlings Zynga and Groupon -- have seen major drops in share price. Some have shut down completely.”

Look for yourself:

The Top 10 Web IPOs of all time -- pre-Facebook, that is (images)

I don't think Facebook will shut down in the next three years. I also won't be in the least bit surprised to see if worth a fraction of whatever it ends up selling for tomorrow in three years time.

No doubt about it there will be Facebook billionaires and millionaires. They'll be Zuckerberg, his buddies, and others who were in before the stock ever went public. People who buy into the IPO? Well, here's an old joke for you from Sir Richard Branson, founder of Virgin Airlines, “If you want to be a Millionaire, start with a billion dollars and launch a new airline.” You could also do it by investing in Facebook.

Related Stories:

Facebook sets IPO share price at $38: $104 billion valuation

Facebook IPO: Risk Factors and dependance

Facebook IPO: Risk Factors and growth

Facebook got 9% of all US Internet visits in April

Facebook options trading to begin on May 29

Topics: Legal, Banking, Social Enterprise

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18 comments
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  • Stocks are meh to begin with

    They only make money if the business does well. There are plenty of ways to make money on the market that are more dynamic.
    Aerowind
    • Not really

      "They only make money if the business does well."
      Yeah, that's how they were supposed to work. Nowadays however the only thing that matters is whether people believe that there are even bigger idiots than them, who in a few months time will buy their stocks at an even higher price than they did originally. If they do, the stocks will rise; if they don't, the stocks will fall.

      It has nothing to do anymore with real business performance, because people don't decide about buying a stock based on dividend and return rate (if they did, Apple stock wouldn't have risen in the last decade), but based on whether they think the stocks trading price will rise or fall.
      ff2
    • and that's the problem

      It's called gambling with other people's money. Lots of money for the predators, devastation for the prey. It's like the GFC never happened in some people's minds.

      I'll agree with the other posters, SJVN has become both readable and even useful since he stopped the incessant whining about that global OS.

      Facebook is just the bulletin boards I used to use in the early 1990s grown large. Not really any improvement either as the original bulletin boards didn't have ads. Given the Social Network and my reading of Z's pronouncements, I'm quite prepared to believe he's an arsehole and I agree with SJVN that the purchase of a company that essentially screws up your photos for 1 billion is just ridiculous.

      This IPO is just a payday for people who don't really deserve it and a trap for those with more money than sense.
      tonymcs@...
  • You're right, you're not a Stock Market mavern

    neither am I, but I do read beyond my world.

    Yes, GM pulled their ads, and you think that they see Facebook jumping the shark?
    No, they came out and said because they haven't got the ROI they wanted. Ford on the other hand said the opposite, it's working for them, so are they jumping the shark, or not?

    [/i]Many insiders have already announced that theyll be selling their shares and taking their cash out tomorrow[/i] Wake up -Why wait to be a millionaire when you can be one on Friday?

    If you where someone who is making XX,000 a year holding 6 million in facebook stock, would you wait? I didn't think so. What would waiting a year for another half a million really accomplish? Not much, so it's not that they have no faith in Facebook's future, they just want to start being millionaires on Friday.

    I'm not saying buy on Friday, I just son't see this going the way you do, as you're not looking at the bigger picture.

    Google+? Pinterest? Both will be gone in 12 months
    William Farrel
    • You have too much faith

      "Many insiders have already announced that theyll be selling their shares and taking their cash out tomorrow Wake up -Why wait to be a millionaire when you can be one on Friday?"
      which is why the stocks value will plummet shortly after its floated.

      "Google+? Pinterest? Both will be gone in 12 months"
      ... and facebook will not be far behind believe me.
      12312332123
      • Update - GM to pull advertising from next year's Superbowl

        i take it the Superbowl jumped the shark?
        William Farrel
  • By golly, Steve,......

    ....when you're not talking about open source stuff, you make a lot of sense! :)
    Userama
    • RE:By golly, Steve,......

      I swear to God his profile pic yells "I'm a troll, feed me! *burp*" from a mile away.
      G'Dammit!
  • Yeah zb is highly overrated but being in full control is nothing new.

    But FB doesnt have to add a single new subscriber to gnerate 10x or 100x their current revenue. It's not about more subscribers anymore for fb. That's the place where g+ is and it's failing miserably with almost no public sharing/commenting. fb already has the network effect and the rev protential. That said I won't be diving into the ipo, I think nokias a better buy right now.
    Johnny Vegas
    • Revenue Potential = More adds in your face

      I wound't bank on FB being able to monetize its user base enough to justify their market cap without putting so many adds in your face it becomes ridiculous. Maybe they will find another way, but that is quite a gamble since almost 90% of their revenue thus far as been on display ads.

      I woudlnt count G+ out yet either. They don't have the engagement FB does obviously, but its only 10 months old. They went from 40 million, 90 million, to 170 million users in each of the last three quarters. It is growing, and possibly even more important, Google can run it add free for as long as it likes while FB has to deal with the pressures of explaining to the public how its going to make money.
      Marc Ello
  • Don't be a Facebook IPO idiot

    But if I buy when it opens then sell at the high point of the day which is estimated to be double the price then I could make a nice profit. Hard to say but this stock may surprise everyone.
    Loverock Davidson-
    • That's the trick

      And lots of suckers lose money trying to do it.

      The second trick is to learn enough about financial management to keep your winnings.
      John L. Ries
    • No surprises

      I was wrong, there were no surprises on this.
      Loverock Davidson-
    • Here Says LD

      Formerly chief financial advisor at Lehman Brothers.
      Alan Smithie
  • Oops

    Well done Steve... you just gave away your email address!
    jan bLinQue
  • Facebook remains

    Much ado about nothing.
    klumper
  • A better reason to skip the Facebook IPO: Warren Buffett is skipping it

    Steven's reason not to get in on the Facebook IPO, assuming that one could? Facebook is not Google (mentioned twice in the blog article).

    While Google's IPO did make investors some money, investors that have purchased Google stock since mid-year in 2007 - with the exception a deep low in late 2008 to early 2009 - have not seen appreciable growth. And since Google is a 'growth' stock, there is no dividend. [Peruse Google at finance.yahoo.com.]

    Facebook and Google, however, do have two significant commonalities: 1) both companies depend [mostly] on the same source for their revenue, sheep that voluntarily give up their wool, and 2) both companies have been slapped with 20 years of privacy monitoring by the FTC resulting from privacy violations.
    Rabid Howler Monkey
  • Funny thing though...

    Zuckerberg has done a pretty good job at the helm of Facebook. I'm trying to figure out what the negatives are for him staying there. When you look at the strongest performing tech stocks in the past, it wasn't the one's where control was given up in the IPO to a board of directors. In the successful tech companies, control may have eventually transitioned away from the founder(s), but that process was slow and gradual. Only an idiot would think that a newly elected board of directors could come in, take over the company and have an even average chance at not losing value hand over fist post-IPO.
    jasonp@...