Greed may be good, as Gordon Gekko once said, but not when you’re having your initial public offering.
Facebook’s hubris of pricing its stock at $38 was borderline thievery, along with the last-minute decision to increase the number of shares offered by 25 percent — and all the evidence is in the numbers.
And yes, we will have years of investor lawsuits against the IPO’s exchange, Nasdaq, and perhaps the lead underwriter, Morgan Stanley. But fault must lie in Menlo Park, Calif., as well.
At the offering price of $38, Mark Zuckerberg’s social-media company was worth $100 billion. The numbers and the managerial execution simply don’t justify that kind of valuation — not even close.
Facebook would need to have at least $10 billion in sales revenue and growth well over 50 percent sequentially (and that was accelerating) to justify that kind of a price, neither of which it is even close to.
In fact, Facebook’s growth has been slowing from more than 111 percent in the first quarter of 2011 to 44 percent for the same quarter this year. Facebook’s latest revenue report said it brought in $1 billion — 10 percent of the revenue needed to justify its $38 share price.
Apple and Google — perhaps two of this planet’s greatest companies — currently trade at about 5 times revenues, and that’s rich! But Facebook came out at more than 30 times revenues. That’s not rich, that’s robbery! Consensual, yes, but robbery nonetheless.
When Google came public in summer of 2004, it priced at an astonishing 58 times earnings. Facebook’s price? More than 100 times earnings.
The last piece of evidence is the number of insiders who are selling. Early investors, as well as some employees, cashed out in huge numbers.
Facebook insiders were extremely heavy sellers on the opening day, accounting for a huge 57 percent of the IPO sale!
The numbers don’t lie.
Who knows where Facebook’s share price will be in 12 to 24 months? But the actions of the company coming out of the chute seem to say, “Get your money now. Greed is good.”