Share prices of Facebook stock have been distinctly underwhelming since the first day of trading — to the tune of ~30% off its original offer price. And everyone seems to have an explanation as to why.
Mr. Janal has come up with a dozen reasons for the Facebook IPO failure. The ones that struck me as most compelling are these:
- The public is not as dumb as Wall Street thinks. Chalk it up to too many other dot.com “can’t miss” opportunities that whiffed big-time.
- Who has excess money to throw around? Small investors are struggling with underwater mortgages and mountainous debt … so how do they have extra funds to throw at an IPO? Get real. (And the institutional investors stayed away because they were clearly “in the know” about how unrealistic Facebook’s IPO share pricing really was.)
- Who goes on Facebook to actually buy things? Precious few, that’s who. And if buyers aren’t on Facebook … then advertisers won’t be there either. And with that, there goes a big part of Facebook’s business rationale down the toilet. (GM backed out of its Facebook advertising program – very publicly – just days before the IPO. That timing suggests they were trying to tell the market something!)
- Friends aren’t really “friends.” Indeed, many Facebook friends are more like acquaintances, which is a lot less compelling when it comes to word-of-mouth influencing. (LinkedIn connections are far more “honest” in terms of being “all about business.”) When Facebook contends that friend networks will influence more buyers, investors look at their own friend networks … and they don’t buy the hype.
- There’s a huge gulf between Facebook “friendships” and actual “engagement.” And if friends don’t engage, a big piece of what makes the Facebook power matrix potentially so potent falls away.
Mr. Janal maintains that the characteristics that make the Facebook platform what it is aren’t the same ones that’ll launch “a million new millionaires.”
Sure, the early investors who acquired stock options early in the game came out big winners. But precious little of that largesse turns out to be in the cards for the rest of the investors.