I don't like IPOs because of what underwriters and companies that are paid to take them public do. It's a money grab. It's an attempt to raise as much money as possible. The underwriters of the Facebook IPO is a who's who list of major Wall Street firms and banks. Below is just a few:
Oppenheimer & Co
Pacific Crest Securities
Cowen and Co.
Firms like Goldman Sachs will not only take a company public, they'll use their analysts to pump the stock with upgrades, and even pre-sell shares to their elite clients before the IPO.
Now ask yourself this. If Facebook is such a great money making company, then why does it need to raise money from the public? Why even take the company public if you're making enough money running it privately?
In new pre-IPO financials released about Facebook, their earnings month over month have dropped 6% in the first quarter of 2012, compared with the 4th quarter of 2011.
Facebook gets over 80% of its revenue from advertising. Advertising is a notoriously unstable source of income. We know that online advertising companies are struggling right now with even the mighty Google missing earnings targets on lower online advertising income.
The other thing I don't like is founder and CEO Mark Zuckerberg has stripped shareholders writes. If you buy stock, don't think you're going to get any voting rights whatsoever. Mark has already made sure you won't. Further, regular subscribers know that I posted a video last year on Mark Zuckerberg laughing about how, in order to raise money in Facebook's early days, knowingly planted malware and toolbars that could not be removed from Facebook users computers.
On November 29, 2011, Facebook agreed to settle US Federal Trade Commission charges that it deceived consumers by failing to keep privacy promises:
- Facebook represented that third-party apps that users' installed would have access only to user information that they needed to operate. In fact, the apps could access nearly all of users' personal data – data the apps didn't need.
- Facebook told users they could restrict sharing of data to limited audiences – for example with "Friends Only." In fact, selecting "Friends Only" did not prevent their information from being shared with third-party applications their friends used.
- Facebook had a "Verified Apps" program & claimed it certified the security of participating apps. It didn't.
- Facebook promised users that it would not share their personal information with advertisers. It did.
Mark Zuckerberg is a rich little snotty kid who used illegal and harmful acts to grow Facebook into the giant it is today. Unless he's repented for his ways, he doesn't have the character or morals that I would trust with my money. I remind you, he also set up the public share offering in such a way as to make sure you don't have the right to oust him if he screws up, like he already has.
The initial IPO pricing will be between $25 to $38 per share, with a market valuation of about $100 billion. Taking Facebook's just released financials for the previous quarter, that is a P/E ratio of 100. Other online media firms like Google, Apple, Microsoft, and Yahoo don't trade anywhere near a P/E ratio of 100.
Finally, a lot of dumb amateur investors are going to pile into Facebook. Most of them use the logic: I see my wife on Facebook all the time so it's got to be good... I'm gonna get me some Facebook shares. Talk about dumb sheep being led to the slaughter. I'm not interested in trying to take money from dumb people playing the initial run up, then trying to sell before the post-IPO crash. I don't believe that is a strong enough profit-thesis, dumb investors I can take advantage of, to buy Facebook.