Sorry, but Facebook is nothing like the Madoff scam

This Facebook thing is getting waaaaay out of hand.

Barry Ritholtz posted a video interview Thursday with the WSJ Hub crew in which he compares Facebook to Bernie Madoff, the ponzi king.  “There’s greed and greed that gets you sent to prison,” Ritholtz says. And the reporters didn’t  challenge him.  Unimpeded, Ritholtz pivoted to a warning that investors must be wary of companies that invent their own system of metrics — like Groupon (arguably, a Ponzi scheme). Anyone who has ever touched a “like” button on any website counts as a Facebook user. This is no secret. It’s stated in the regulatory filing. Loads of people  believe that the Facebook system of counting users is ridiculous, so they look to Nielsen or other third-party firms for the data.

And what about all that trading of Facebook on private exchanges before the IPO? That was  totally opaque, Ritholtz says. I guess that’s supposed to be Bernie like.  By definition, those exchanges are not transparent. Anyone who treads there is stepping into treacherous waters. That’s why you need to be an accredited investor to swim in those waters.

Do all those things make Facebook a minor Madoff? When last I checked Facebook was a real business with earnings and revenues.

True, the underwriters and Facebook tried to raise as much money as possible. They overplayed their hand. Nasdaq made a mess of the opening. And there was some real ugliness: the media is reporting that Facebook and analysts at the major underwriting firms notified favored clients that second quarter earnings were likely to disappoint — just days before the IPO priced. All that is certifiably icky. But it appears to be legal.

Even before the Facebook IPO became a slo-mo train wreck,  people like me were saying don’t invest unless you are using money designated for high-risk ventures. Read my ebook, The Facebook IPO Primer. Read the Wall Street Journal. I personally know brokers even at Morgan Stanley were trying to steer away their clients. The media was filled with interviews with tons of bloggers and analysts saying that the company was probably worth about $70 billion, not $100 billion. In my ebook, I included one who said the company was worth only $30 billion — at the time an assertion so outlandish that I almost didn’t include it.

And what about our friend Bernie? He was the hail-fellow-well-met who lied through his teeth. The big man on campus was a putz. He fabricated monthly  statements.  The lone voices who questioned his returns were hushed by his admirers. Madoff deserves to be in jail for the rest of his cursed days.

But the execs at Facebook? I don’t think that should be their fate. Unless greed and stupidity are indictable offenses. In which case we’d really have a jail-crowding problem!


Deal of the decade: Beware the froth in the Facebook IPO

I had a great interview today on CBC radio’s  The Current, the top morning program in Canada. Anna Maria Tremonti asked great questions. Also on the interview:  David Fitzpatrick, author of The Facebook Effect (a great read), and investor David Andrews of director of investment management at Richardson GMP.

Listen to the interview here.

Facebook is oversubscribed. No Under-subscribed. No over. No under. Over. Under. Actually: both.

Reuters and Bloomberg are butting heads over just how well the Facebook roadshow is going.

Bloomberg came out first at 9.28 pm with a story saying investors were reluctant to put in their orders after the social media giant said mobile use was going up, but not its ad revenues. The company is on Day 4 of a national roadshow, a ritual for companies selling stock to investors for the first time.

Less than an hour later, Reuters fired back with a quick and dirty story saying, oh-ho, Facebook is oversubscribed.

It’s Chinatown all over again.

IPO orders are notoriously ephemeral. Institutional investors give a list of what they would be likely to buy — called “indications” to the investment bank underwriting the deal. The institutions may say, for example, they would buy 100,000 shares of Facebook at $28-$30; 75,000 at $30.50-32.00/share. All the way up to, say, 5,000 shares at $40. But if a volcano hits a Facebook data center the night before the pricing, all those orders could just disappear. Poof.

So my reading: Before the “profit warning” yesterday, investors were pretty much slobbering all over the deal. Now they aren’t slobbering and may actually be saying, well, I’d pay this much but not that much. So the deal may well be under-subscribed at $100 billion but oversubscribed at $75 billion. The wind blowing through the Facebook deal is the wind of caution. Slobbering, done. Time to sober up.

The other subtext: Investment banks  must now deal with clients who bought Facebook in the private market at prices that won’t translate into an instant killing in the IPO market. As Wall Streets might say, the optics aren’t so good.

In my book The Facebook IPO Primer, I shared five different ways that analysts look at Facebook. One said the company was worth just $30 billion — shockingly low. The top estimates were about $154 billion. When Facebook first announced that it was going public, somehow everyone wrote that it would get priced at $100 billion, even though most analysts thought it was worth closer to $70 billion. I can’t tell you what people had to say about that $30 billion valuation.  It’s hard to imagine Facebook with that small a valuation (and I’d bet Zuckerberg would pull the deal before letting that happen). But if investors are tiptoeing towards $70-$75 billion, well then, that would make it seem as if demand was indeed shifting. Not disappearing. Sobering up.

It’s funny: Facebook has been saying all along that mobile isn’t making money — yet. And everyone knows that users are becoming increasingly mobile. So the announcement Wednesday contained NOTHING new. But it was a wake up call. And now everyone is awake, they’re sharpening their pencils, and getting ready to make some real decisions.

Facebook is planning on launching the IPO on May 18, and hoping to raise about $11 billion.

Facebook isn’t Google, it’s Mark Zuckerberg – excerpts from my interview with Abnormal Returns

Tadas Viskanta, the blogger behind Abnormal Returns, invited me to be a guest columnist this week to discuss Facebook on his website. Part I appears today and looks at how Facebook is and isn’t like high tech IPOs of the past. Here’s a brief excerpt:

AR: The Facebook deal is the first big game-changing IPO to come down the pike seemingly since Google. Given recent first quarter numbers how does Facebook compare to Google prior to their IPOs?

NM:  The big question people are now wrestling with is how is Facebook different from or similar to hot tech companies like Netscape, MySpace and Google.

What I find so interesting now is that when I first wrote the ebook, a lot of people asked how can you compare Facebook to Netscape and MySpace? They are too different, they said. But that perception changed overnight when Facebook revealed that for the first time ever, total revenues fell sequentially between the fourth quarter of 2011 and the first quarter of 2012. Boom! It was like a blizzard hit on a sunny day in July.

Suddenly everyone was whispering “Myspace.”

Read on here.

The Facebook IPO Primer — my new ebook is out!

I’m excited to report that my new ebook, The Facebook IPO Primer, is now available on Amazon. It’s a quick read on the stock offering, and covers everything from high tech stars of years gone by, the culture and business plan of Facebook, and the different ways analysts look at the company. Plus, it includes an extensive linkfest so you can learn more.


Only $4.99. Better than a birthday card.

I wrote the book quickly! About six weeks ago, Mitchell Brown from called and asked if I would like to write something on the IPO. After some thought I decided it would be a great way to educate a broad audience about how the stock market works through an exciting company that everybody knows.

You can also buy the book through and read it on your computer —  or move it to your iTunes library and synch it to an iPad.