Facebook’s second bubble expanding

Here we go.  The investment community and media, which are really one and the same, are fueling the next Facebook bubble.   The insiders are in the process of making their second killing at the expense of the naive public investor and the U.S. population (and the world) as a whole (401k’s and retirement all linked to hedge funds).  Before I get started, can I request that some artist create a picture of Zuckerberg blowing a bubble?  She is much nicer to look at, but it would be more poignant had I a picture of Zuckerberg and the insiders all blowing bubbles together.

Facebook’s stock price is up to almost $26 bucks today, which is an 8% increase from yesterday.  At $26 bucks, the stock price has increased 30% from November 13th (the day before the big lock-up period expired) and 46% from September 4th (the all-time low for the stock).  What explains this rebound?  How can the company go from being valued at $100+ billion on the day of the IPO (back in May) to a valuation of just $46 billion as of September 4th (all-time low), to a current valuation as of today of around $56 billion?

What new material information has caused these incredible swings?  It certainly isn’t the financials reported in the last two quarters,  which I covered in the previous post.  I will tell you what new and insightful information we have learned — absolutely nothing.  Oh, Facebook is entering the e-commerce space with the new gift businesses…yawn…we already knew this.  In fact, we knew about the “innovative” gift business when they bought Karma Science back in May.  We always knew Facebook was going to try to take on Amazon, just like we know Facebook is going to try to take on Google.  Good fucking luck.  And, we also knew, prior to the IPO in fact, that Facebook was going to try to monetize users that access Facebook primarily via mobile devices.  What new information have we learned to account for all these dramatic swings?

What we are seeing is the media and investment community (the “analysts” and hedge funds) pumping out a bunch of pro-Facebook propaganda to create a second demand for the stock after the same punks already made some nice gains on shorting the stock.  All we are seeing is the same song and dance that we have seen over and over again.  The media and the investment community blow hot air and form a bubble — when the insiders are in the big money (including those high-fliers within the company loaded up with their pre-IPO shares), they let the bubble pop by dumping huge amount of shares onto the public.  The result — a few get extremely rich and the naive public investor and the public in general (on the outside) get stuck holding the bag.  The below articles give a nice little sample of the song and dance.  Enjoy the waltz, until the music stops.

Greenfield upped his ratting on Facebook

More upside than downside, Bernstein says…

Another bearish Facebook analyst has changed his mind

Facebook gets boost from Topeka and BTIG

Hedge Funds building next Facebook bubble

Most people were surprised, including me, when Facebook’s stock price rose on and after November 14th when a large lock-up period expired.  In fact, in my last two posts, I made the prediction that Facebook’s stock price would fall to all-time lows.  Well, I was wrong. And here is my hypothesis as to why many people were surprised.

Those that really control the stock market are not the small investors, but the huge hedge funds.  These groups with billions of dollars can move a stock up or down based on their decisions to buy, sell, or short a stock.  My hypothesis is that these huge hedge funds made some good money shorting Facebook and now they are buying up shares to build the next Facebook bubble (Hedge funds buying Facebook).  As we know, the first Facebook bubble already exploded and the insiders made a killing.  I believe these same legalized crooks are now building the next one.

Prior to going public, the valuations projecting Facebook at $100+ billion relied on the company growing revenues at over 100% a year.  But if we look at the revenue growth for Facebook this year and what they are spending to get that top-line growth, we see that is merely a game of propping up revenue  in the short-term to maintain revenue growth (see tables below).  And the revenue growth isn’t any where near 100%.  Yes, Facebook is working on its mobile advertising platform, but based on what I have read, advertising revenue earned from mobile use is not a booming business (Google advertising revenue decelerating from increase in mobile use).

Facebook Top Line Year to date six months
	Jun-11	Jun-12	Growth %
Revenue	$1,626	$2,242	38%
cost of sales	$377	$644	71%
sales & marketing	$158	$535	239%
Margin	$1,091	$1,063	-3%
Facebook Top Line Year to date nine months
	Sep-11	Sep-12	Growth %
Revenue	$2,580	$3,504	36%
cost of sales	$613	$967	58%
sales & marketing	$272	$703	158%
Margin	$1,695	$1,834	8%

Therefore, based on the public information that has been reported for the first two quarters, there is no reason Facebook’s value should swing by the tune of $5 billion dollars just because a lock-up period expires.  The big boys are controlling Facebook’s stock price.  And when they want to take their profits, the bottom will fall out and the public investor will pick up the tab.

Facebook Stock Rises with Lock-up Expiration

LMAO.  Facebook’s stock price jumped today as a major lock-up period expired.  Suddenly, as more shares hit the market, the value of the company or market capital rose billions of dollars.  My opinion is that the marketers — the stock brokers and financial advisors did their job well.  They fooled the public to buy shares of Facebook.  The insiders made a nice little profit from a bad situation.  I could be dead wrong, but I expect the FB stock price to slowly decline over the next several weeks and to hit an all-time low in a month or two.  These guys on the inside are really something and they have the media on their side to hype up the turnaround.  All part of the inside game —  keep prolonging the idea that the company will actually be worth $100+ billion dollars so the insiders can dump off their shares in the short-term.

Social Networking Performance Update

Now that the election is over and we are approaching the expiration of Facebook’s big lock-up period, I figure this is a good time for a little update on the social networking scam.

As of today, I want to compare the initial IPO price and the current price for five key social networking stocks — Facebook, LinkedIn, Groupon, Zynga, and Yelp.  Facebook’s IPO price was $38 (some insiders had it above $40) and the stock price is currently $19.99.  LinkedIn’s IPO price was $45 (but ended the first day at $94.25) and the current price is $96.35.  Groupon’s IPO price was $20 and the current price is $3.92.  Zynga’s IPO price was $10 and the current price is $2.16.  Yelp’s IPO price was $15 (went to $24.58 on first day) and currently sits at $17.77.  For the record, those stocks that experienced a huge first day jump benefited the insiders — no one else.

As a whole, the insiders have made billions and the public has lost billions.  Here is an excellent article that summarizes my argument (although it is a little too forgiving) that the IPO process is flawed resulting in a huge unfair misallocation of wealth in favor of those on the inside (Was the Social Media Tech IPO Boom a big Scam).

LinkedIn and Yelp have performed pretty well, but I want to make a few points.  LinkedIn has only been public for a year and half.  The insiders at LinkedIn (including the executive team that makes a nice salary) have already cashed out $682 million — the company “LinkedIn” only received $248 million in proceeds from the IPO.  The insiders have siphoned 2.75 times the amount of money the company raised and the stock price is only a couple bucks above the first day of trading.  Yelp, which has only been public for seven months, is trading below its end of first day stock price by almost $7 bucks, yet the CEO just cashed in $15 million.  That $15 million is on top of another $15 million Jeremy Stoppelman (CEO Yelp) cashed in pre-IPO (Yelp top brass Cashed out $36 million in pre-IPO Stock Sales).

In the next several weeks, Facebook is going to float to the public a large number of shares that will mainly come from inside sales as additional lock-up periods expire (Facebook Lock-ups).  The number of shares flooded onto the public market will almost double compared to the current number of shares outstanding.  I think the above article covers the potential outcome, but I am going to side with the idea that markets are far from efficient.  I expect Facebook’s stock price to fall to  all time lows on or shortly after November 14th when 777 million shares could hit the market.  The insiders will once again cash in at the public expense thanks to the flawed IPO process and a legalized crime syndicate.

Federal Reserve QE3

I don’t have much to write here other than the corrupt Federal Reserve, through QE3, will help the Social Networking/Media scam in the short-term (QE3).  They are all in bed together.  The only reason Facebook has seen a noticeable jump in the stock price is because Zuck said he wouldn’t liquidate his private shares for a year and this QE3 implemented by Federal Reserve.  No other information or strategic change explains the rise in the stock price.  The Federal Reserve, loaded with ex-bankers and members of the legalized crime syndicate, is simply implementing their game of kick the can.  Prolong the financial cliff so those in the money can reap their gains in the next several years.  Our social media and network insiders will most certainly benefit greatly from this policy.

Facebook Insiders continue to cash out

As Facebook lockup restrictions unravel, we see more and more insiders cashing in to make their millions and billions off the public.  Most recently, Peter Thiel, a man well-connected to what I call the legalized crime syndicate, just cashed out near $400 million taking his total winnings to almost $1 billion (Peter Thiel cashes out).  Peter, why didn’t you hold your shares well into the future?  If Facebook is going to live up to a $104 billion valuation, there is only upside in the stock.  You could double your winnings if you think long-term…right?

But Peter isn’t the only member of the legalized crime syndicate cashing out.  Remember, Reid Hoffman, the founder of LinkedIn and partner with Grey Lock Partners, also cashed out on the day of the IPO.  Apparently, he also didn’t think Facebook is a long-term play, otherwise, why sell the majority of his shares?  And by the way, these two “Reid’s” know each other from the days they worked together at PayPal.  Amazing how these two pals turned their $500,000 investments into millions and billions….truly magic.

The Facebook IPO hauled in $16 billion dollars.  The company Facebook only received $6.8  billion of those funds from the IPO as the rest went to the insiders.  As of today, insiders have cashed in almost $14 billion dollars on the deal (Inside trades Facebook).  Note that the insiders have pocketed double what “the company” Facebook has earned via the IPO process.  And, as more lockup periods expire, we will see the ratio of insider wealth generation to Facebook (the company) wealth generation via the IPO process only increase.  Meanwhile, the stock is half that of the original IPO price.  Guess who is paying the insiders their $14 billion dollars?  You are.

Facebook Plunge

Apparently, the public investors are figuring out Facebook and other social networking and media companies aren’t worth their IPO valuations as the stock prices continue to plunge.  But, I want to highlight some important points.  In a CNN article today, Facebook stock plunges to all-time low, the author says, “Facebook matched analysts’ expectations when it reported after the bell Thursday. The company also delivered a 32% gain in second-quarter revenue, to $1.18 billion, slightly topping forecasts.  But investors are not sure how the company will bring in more revenue from its 955 million users. In particular, investors are concerned about how Facebook will make money off its mobile platform.”  Notice that 32% growth rate shows further deceleration of the revenue growth rate illustrated in the chart to the left.

My key question is how can a company match analysts’ expectations for revenue and earnings and then experience a 17% plunge in the stock price on a day where the rest of the market is up?  How can a company that is valued via the IPO process hit the market with a $100 billion valuation and then lose 40% of that value in the course of a couple of months?  Tell me, please, what new information has surfaced about Facebook’s business model that wasn’t already clear before the IPO?  All I hear is that people are using Facebook more from mobile phones and therefore makes advertising monetization more difficult for the company.  Well, how long have people been using their mobile phones to access Facebook?  How long has the I-Phone been out?  Could the truth be quite simply that Facebook has maxed out its user growth and their usage and that the users aren’t interested in being further monetized?  Didn’t all the intelligent financial analysts and gurus foresee this before the company was valued at $100 billion?

The key point I want to make is that I believe the IPO process is run by a syndicate of legalized white-collar crooks and that includes the executive management of companies going public.  Not all companies.  Some companies still go public because they want to obtain funds to grow the business.  But these social media and networking companies are a scam made possible via the power of the legalized financial crime syndicate.  Facebook, Zynga, Groupon, Yelp, LinkedIn, all examples in plain sight ripping off the public while a select few make millions and billions through the IPO process.  The investment banks, the venture capitalists, and an elite group of techies and Ivy league misers have a death grip on the IPO process funneling billions into their own pocket books.  The “company” is merely used as a shell game.

But, I must say the crime syndicate is beginning to lose their touch.  I expected these social media and networking companies to mask their bubble for a year or two in order for all the insiders to quietly cash in on their IPO shares post lock-up periods.  Perhaps they have more smoke and mirrors yet to employ to drive these slumping stock prices back up, but I think the market is so tough and the public more skeptical that such a surge is unlikely.  Although legalized crooks and misers like Zuckerberg and Hoffman and Pincus will earn far less as they sell their insider shares, they will still take home millions and billions.  You see, the IPO process ensures these insiders really can’t lose.  In the end, it is the public or outsiders that pick up the tab.  Cheers.