The IPO of Facebook stock on friday was a bad business day on two accounts. Most obviously, the anticipated share price “pop” didn’t happen by the end of the trading day. FB shares opened at $38.00 per share and ended the day at $38.23 per share. According to Andrew Bary at Barron’s, early investors paid an average of $1 per share. With lockup provisions on 1.8 billion shares expiring in the August to November time-frame, large scale selling could drive down share prices later in the year.
The Barron’s article quoted a tech trader who said
“Like most IPOs in tech land, Facebook is geared toward enriching early investors and employees while sticking public investors with shares burdened with poor voting rights and high growth expectations.”
There is nothing new in this statement of condition. Cashing in one’s shares in a risky investment of time and money in a startup is a commonly executed means of capturing reward. Risk takers are entitled to a payoff when a venture achieves success.
But this trader’s sentiment reveals something deeper about business and it’s role in our culture. This was a public offering of fractional ownership whose sole means of income is advertising. It is clearly designed to transfer future risk to public investors who have precious little voice in corporate governance.
Facebook has offered public investors a kind of sh*t sandwich: A chance to buy into a public corporation that is structurally configured to retain controlling interest by one of the founders.
Has Facebook created wealth or is it just capturing the market share of other advertisers? Facebook, like Google, is a creature of advertising. And, like Google, it is a magic version of the Yellow Pages that automatially anticipates or finds the listings you may want. But it is more than that. It is a directory that supplies the listings it wants you to have. Instead of the full page ads of the advertising print period where trees were actually pulped to provide something called “paper”, today’s ads are hot links to the advertisers website.
Facebook and Google are really just newer versions of the old circus of broadcasting. Broadcasters supply eyeballs and ears to adverisers who then have tens of seconds to mesmerize viewers and listeners with their magic. It is like rattling a stick in a bucket of swill. Facebook supplies amusement as a so-called social network and Google supplies entertainment as well as utilitarian services.
It was also a bad business day for broadcasters covering the FB IPO. All of the cable television business progamming was set on this blessed and much anticipated initial public offering. Regrettably, the event was delayed for technical reasons until mid day EDT. When the stock was finally released, “experts” were standing by to render their opinion on the last 20 seconds of market activity. Like all stock market data, it is marked by a jittery, noisy curve, sometimes trending upwards and then downwards. Over one minute anything looks like a trend.
Faced with the possibility of hours of air time to fill before something exciting happens, the CNBC talking heads natter on and on with a variety of experts who natter on and on. All-the-while stock footage of the NYSE floor and the post-pubescent hoodie-boy CEO of FB loop cycles endlessly. For this we allocate broadcast spectrum?
In the end, there was no excitement. FB closed the day pennies above to where it started. I like to think this is because investors aren’t as foolish as the cynical people who are behind the offering believe on the opening day, at least.
An excellent analysis of Facebook valuation has been posted by Aswath Damodaran, Professor of Finance at NYU.