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.