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.