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