Reid Hoffman Social Media Mafia Boss?

If you spend some time trying to figure out who the big boys are on the inside “Linked -In” to the social media or networking bubble, one name comes up frequently — Reid Hoffman.  Mr. Hoffman is the founder and chairman of LinkedIn and is currently a multi-billionaire on paper based on LinkedIn’s projected value and the number of insider shares he holds in the company.

But if you read through articles, it becomes clear that he is connected to Facebook, Groupon, Zynga, Yelp, and a host of other social media companies through Greylock Partners.  And he has considerable money in the game or “the bubble”.  The mainstream media paints him as an “angel investor”, “entrepreneur”, and “tech visionary”.  I will play devils advocate and call him out as a legalized crook and Ponzi schemer concerned merely with enriching himself and his well-connected pals at the expense of the masses.  The main stream media could be correct and I could be wrong, or the opposite could be true.  But who is Reid Hoffman and what are his connections to the social media and networking bubble (Hoffman background)

Hoffman is worth billions via LinkedIn, but he also has cashed in on the recent Facebook IPO in the tune of at least $412 million bucks (who got richer on Facebook IPO) which is by far the majority of his holdings in the company.  He has also liquidated $30 million in his own company LinkedIn post lock-up period, but of course he still has most of his billions still invested in the company.  But, his executive team is cashing out huge portions of their cheap pre-ipo stock grants and becoming millionaires.  How long will Hoffman hold on to his billion dollar paper value in the coming six months to a year?  My prediction is that we will see him start dumping larger portions of his stock given the Facebook flop and his inside knowledge that LinkedIn is way over-valued.  I could be wrong.  But, given what I have read about the founders, executive teams and companies that he has supported financially (Facebook, Groupon, Zynga, and LinkedIn), and after observing these insider behaviors connected with these entities, I am at this point in time, comfortable with calling out Reid Hoffman as a mafia boss of the legalized crime syndicate.

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Social Networking Stock Performance Stinks

LinkedIn, Groupon, Zynga, Yelp, and now Facebook have all gone public.  At this point in time, with the exception of LinkedIn, the sector’s stock performance has been horrible.  If we compare the stock price close as of today versus the stock price close on the day of each company’s IPO, the following percentages illustrate returns based on those prices:

Facebook -25%, Yelp -31%, Groupon -55%, Zynga -36%, LinkedIn 6%.

If we compare the peak stock price on the day of the IPO (first day pop before big investors dump on to retail investors) to the stock price close as of today, we have the following returns:

Facebook -56%, Yelp -52%, Groupon -164%, Zynga -89%, LinkedIn -23%.

Those insiders that cashed out significant holdings on the day of the IPO have made out quite well relative to the rest of the investors.  And, as I have pointed out in my LinkedIn pieces the insiders have been dumping significant shares post-lockup period.  I eagerly await to see what the insiders do at Facebook, Yelp, Groupon, and Zynga once their lockup periods expire.  Will we see a mass exodus, or do the management teams and early investors that still hold significant stock positions believe this sector is a long-term play?

My position is that we will see lots of smoke and mirrors via acquisitions, mergers, and yet more media hype in an effort to keep this sector afloat long enough for the insiders to quietly get out in the next three months to a year.  The Facebook flop even fooled the professionals orchestrating the creation of the bubble.  Perhaps the retail investors on average have caught on to their Ponzi schemes.  Unfortunately, lots of money has already been made by a select few of insiders connected to these companies and the game isn’t nearly over.

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Facebook’s Future “Value”

Facebook’s most recent full year financials show annual revenues of  $3.7 billion and net income of $1 billion and sets the benchmark to contemplate the company’s initial IPO valuation of $104 billion.  But, we must also consider the above graph that shows a recent trend of revenue growth decelerating.  As a comparison to Facebook’s initial $100 billion plus IPO valuation, I want to throw out the company Amazon, which currently has a market capital or firm valuation of $97 billion, annual revenue of $51 billion and recent net income of $.6 billion.  On the surface, or at “Face” value, it seems plausible that Facebook over-time might be able to approach the market valuation of Amazon.  And, Facebook now has at least $10 billion in cash (thanks to the $6.8 billion cash contribution from the “public”) to fuel innovation or purchase additional companies.

But there is, in my opinion, a yawning gap between Amazon and Facebook (neither one in Google’s hemisphere).  Amazon has a “business purpose” that is clear to Amazon users and vendors.  Amazon matches customers with sellers of products and provides information and prices relative to competition and enables users to avoid going to the mall (which I hate unless I am with a smoking hot woman) and finding or paying for a parking spot.  Facebook, on the other hand, pretends the mission is to “help you connect and share with the people in your life”.

Amazon has a straight forward and honest purpose with a value proposition to its customers (buyers and sellers), while Facebook masks the public purpose (users) with the real purpose (sellers, marketing, advertising), which is to “monetize” the users.  Users are the fish, and the true customers (and Wall Street Insiders and Facebook insiders including Zuckerberg) are sitting on boats drinking beers casting down the bait.  And the more fish that bite on the hooks, the richer Zuckerberg, insiders, and the well-connected investment community becomes.  If the users and fish take the bait, Facebook will reach the valuation of Amazon and perhaps even that of Google.  But, I don’t think that is going to happen.  I think the users of Facebook, or almost 1/7 of the world population, are the smart ones that don’t really give a shit about the advertising pop up schemes.

I believe that most users of Facebook quite simply enjoy using the access of the internet for free to serve their own individual agendas, whether that is to get laid (“fuck-book”), be heard, connect with friends and family, make new friends, or other things not covered in the aforementioned.  Most users don’t consider Facebook as a means to decide what to buy.  And given 1/7 of the world population is already signed up (and not considering competitive alternatives), there isn’t a hell of a lot of user growth potential.  The only major potential in revenue growth is “monetizing” the current users and in fact changing the user’s perspective of what the purpose of Facebook is.

Therefore, I believe Facebook is going to fizzle out long-term, but the insiders connected with the Facebook IPO, including Zuckerberg, don’t really give a damn. The game, despite the recent drama surrounding the Facebook IPO circus, is already over folks.  Billionaires and millionaires have already secured their gains and in the next year or two they will increase their gains at your expense.  Facebook’s mission is to prolong the idea that the company might be worth that of Amazon or even Google for one or two years, enough time for all the insiders to dump their pre-IPO shares and cash in.  And, that cash fueling their personal wealth is going to come from the public via 401K’s and retail investors that fail to see the big picture.  Of course, I could be totally wrong and the users may decide that Facebook is the best way to decide what products and services to purchase as opposed to a means to “help you connect and share with the people in your life.”  And if the purpose is to connect and share with the people in your life to purchase goods and services (not referring to free sexual services), then I feel somehow we as a species have certainly lost our way.

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Facebook IPO Fraud?

What a mess.  There is much to talk about, but there will be plenty of time to evaluate and watch this Facebook circus play out.  I want to make one simple argument at this point in time.  Apparently, a lot of big boys got burned on this IPO in addition to the retail investor, while some other big boys made the most of the situation and earned some pretty good coin despite the disappointing IPO as I pointed out in previous posts.  (I am editing this post this morning to add this article that came out today which is very good Who really won in Facebook IPO Mess?  There are a few points amiss in the article, such as the premise that Zuckerberg “just wants to make the world more connected” as opposed to “monetizing” his users to make billions and I don’t think the author realizes that some big boys got burned in this IPO that weren’t as connected as some of the bigger boys.

But, in my opinion, it is only because some big boys got burned do we hear murmurings about legal action and investigations into the IPO (LA TimesFox News).  Why I ask, weren’t there investigations when LinkedIn and Yelp experienced incredible first day pops enabling the big boys to flip their stocks and make a killing?  Isn’t a huge first day pop and then fall just as suspect as a first day flop and then decline?  I find it laughable that only now, because some big boys lost their ass, is there any type of review momentum or concern with the IPO process.  But wait, didn’t our government with support of the House, the Senate, the President, and both Democratic and Republican parties, just pass a bill (IPO Deregulation Bill) that actually further deregulates the IPO process?  When are our leaders going to take action to regulate this out of control industry?

The further one digs into how IPO’s work and how they enrich the insiders and well-connected at the expense of the retail investor (you and I) and the citizens of countries all throughout the world, the more one understands how corruption can become legalized through the lobby arms.  I have a hunch the big boys that got burned will use their power and wealth via the legal system to get reimbursed and maybe, just maybe, for once, some of those lowly retail investors might also get a little trickle down.

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Facebook’s True Customers!

The time has come for a philosophical post on this blog.  Most of this blog is pretty dry and it will take time to prove the premise — that the social media and networking industry is yet another Ponzi-scheme and bubble performed by the same legalized crooks responsible for the Savings and Loan debacle, the Dot Com bubble, the Enron-like scams, the housing scam, and future scams not yet detected by the general populace.  The best three movies I have seen to summarize my point of view and disgust with the rise of the financial fascist power construct in the United States (to supplement my personal experience and philosophical views) are “The Smartest Guys in the Room”, “Inside Job”, and “Too Big to Fail”.  If you want to get a better idea of how I think in the bigger picture and why, whether my lens is right or wrong,  google “Contemplating the Human Direction”, my first and more broad blog on WordPress, which was inspired by another WordPress blog supporting Enron…the author continually blocked me from posting my comments.  As such, I created my first blog.

Facebook and the internet is, at the root, a great concept –enable huge numbers of people to communicate with one another and obtain access to information.  If Facebook and the internet were created for that sole purpose….”to make people and the world more connected” (and let me add more educated) it would be a truly noble cause and I wouldn’t have created this blog.  But the truth of the matter, from my perspective, is that isn’t really Mark Zuckerberg’s true mission.  His mission, especially since the company just went public, is to turn Facebook into a vehicle for the marketing and advertising machine to make billions of dollars off personal information.  His goal and duty, now that the firm just received $6.8 billion dollars from the “public”, is to make money to such an extent that the company would have to be worth over $100 billion dollars.  How can he accomplish this given users join Facebook for free?

You see, my idea of the human being is that we can work together as a species to ensure most of us can enjoy a relatively good experience while we are alive.  I believe we can, as a species, work together to make most of our lives a great experience.  I believe we can create a structure whereby future generations can enjoy on an incremental basis slightly more joy than we experienced.  In short, I want our little young men and women to experience a better life than we experience.  In other words, I believe in a steady progression forward for human beings, as opposed to a game of kick the can where the those alive here an now take all they can and pass on mountains of problems and debt to young people in the future.

Does Mark Zuckerberg share this perspective?  Or is he merely thinking about how to maximize his net worth which currently stands at $20 billion dollars?  Is he being used by others to increase their share of the pie?  Who is this guy Mark Zuckerberg?  What are his philosophical and spiritual beliefs?  Is he simply being used as a puppet for the power construct, or is he legit in his mission statement?  My hunch is that he is a smart programmer that is being used to extract billions of dollars from one-eighth of the world population via the marketing and advertising machine.  What ever good once existed in this “smart” (not intelligent) young man has been drained for the purpose of “monetizing” a big chunk of the people alive throughout the world.  He and the power construct will use the vanity of publicizing personal information about ourselves merely as means to make the fascist financial/capitalistic power structure more money.

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Facebook’s IPO a Flop?

I was very surprised as were others that Facebook didn’t experience the first day pop that is often the case with hyped up IPO’s, especially in technology, but there are many variables to consider.  First, the insiders floated almost 15% of the stock (85% still remains with the insiders), which is quite large relative to the single digit float percent of other social media and networking companies that went public in 2011 and 2012.  The overall stock market has also been in a free fall for the last several weeks as fears of the Euro-zone increase.  And, Facebook’s underwriters priced the stock at the high-end of the company’s current valuation projection which many consider insane (including me).  Finally, the NASDAQ stock exchange apparently failed to handle the swell of demand for the stock…OOOPS!

I will be very interested to see what happens to Facebook’s stock next week as the NASDAQ fixes their glitches and the professional and public investors have the weekend to think about their investment or potential investment in Facebook.  But for now, and assuming the stock doesn’t spike next week or rise in the future, I can say there were a few winners that cashed in on the initial day of trading based on valuing the company at over $100 billion.  First and foremost, Facebook (“the company”) was a big winner given the offer price was very close to the final trade price on the initial day of trading.  Basically, this means Facebook (“the company”) maximized its funds from the IPO.  Believe it or not, a huge first day pop isn’t a good thing for “the company” as it means the company lost potential funds by not pricing the initial offer price at a higher range.  Here is an article that supports my position that Facebook (“the company”) has a successful IPO.  Facebook now has a $6 billion dollar war chest to continue with its scheme to siphon money away from its users into the hands of the marketing and advertising machine.

There were also some other winners if the stock price never goes above $38 bucks in the future.  The insiders that decided to dump a large portion of their pre-IPO stock at $38 bucks per share hauled in $9.2 billion dollars.  Most of these insiders invested far less than they earned by selling their private shares at $38 bucks.  Other potential winners are the huge clients (high wealth individuals or hedge funds) of the underwriters that got first crack at owning the stock at $38 bucks per share.  The stock price hit a high of $45 bucks before massive selling drove it down towards $38 bucks.  These huge clients of the underwriters were able to make quick gains if they dumped the stock at $45 to $43 bucks.  But, I am certain that these large clients are less than pleased for they would have rather started flipping or dumping the stock at a price of $50 or $60 or $70 bucks per share.  But the first day pop failed to materialize.  Too bad….ha ha.  Last but not least, all the underwriters are winners.  They make millions off every IPO regardless of the outcome.  Way to go Goldman, Morgan Stanley, J.P. Morgan, and the 28 other underwriters.  Nice job.

It is yet to be determined if the insiders still holding significant amounts of Facebook Stock (for example Zuckerberg that is currently worth $20.5 billion on paper) and new investors that bought and held shares on the initial day of trading are winners or losers.  I say losers, but in Zuckerberg’s case even a stock price of $12 bucks would make him pretty rich.

I think it is very important to note that the stock price might have fallen below the initial $38 bucks, but apparently the underwriters stepped in to buy large amounts of the stock to prevent it from falling below $38 bucks (Underwriters Step in to Support Stock Price). That isn’t a good sign.  But, again, we will have to wait until next week to see what happens to the stock in order to really get a feel for what is going on.  I have to say that it is a little discomforting that the same guys underwriting the stock (Morgan Stanley and Goldman Sachs for example) can also influence the stock price once it goes public.  I realize anyone has the right to buy stock once public, but it doesn’t seem to fit with spirit of free and open markets when those setting the price can also influence the price through massive purchases or liquidations.

There are two other strong points I want to make.  First, I think it is important to note that Facebook (“the company”) raised less money from the IPO than the insiders siphoned into their own personal bank accounts.  This is a theme that runs rampant through the IPO process to such an extent that I believe the IPO process is no longer about raising money for “the company”, but for siphoning money into insiders personal bank accounts.  Insiders hauled in $9.2 billion while Facebook (“the company”) received just $6.8 billion (Breakdown of $16 billion IPO).  Unless there is a secondary offering, the amount of money insiders will make post lock-up period from the IPO process (assuming the social network/media sector doesn’t collapse) will make that $6.8 billion look rather modest in comparison.  The other interesting point is that the social networking/media sector as a whole took a major hit today as Facebook’s IPO didn’t experience the expected first day spike relative to the offering price.  In fact, the NASDAQ had to stop trading Zynga because so many investors were dumping the stock.  The other social media and networking “playas” that I am following on this blog took hits including YELP, LinkedIn, and Groupon.  I was expecting Facebook to lift these stocks up once it went public, but the exact opposite occurred.

Given Facebook’s IPO is perceived by the general populace as a flop, the pressure will all fall on the management teams and founders in charge of these social media and networking companies to deliver performance to justify original IPO valuations.  And, given the general economic climate is less than ideal, advertising and marketing via these social networking and media channels may experience severe obstacles.  The first cuts companies implement when the economy gets tough are ineffective or marginal advertising/marketing channels.  Facebook may have a rough time trying to “monetize” (or help Facebook’s real customers suck money away from Facebook’s  secondary customers) its user base.

Cashing in on a bubble is a race against lock-up periods and perceived company performance into the future.  The economic climate is working against this social networking bubble and its syndicate of greedy legalized crooks.  I will be following the insiders of all these social media and networking companies to analyze their inside trades as lock-up periods expire.   Will they hold their precious pre-IPO shares into the future and tough out a challenging economy, or will they start dumping them like a load of bricks?  This potential bubble may never get enough air to float to great heights if the Euro-zone triggers another economic downturn and the United States can’t get the engine re-started.  Although the same crooks behind the social networking and media bubble are responsible for the poor economy, perhaps even they may feel a little pain (all relative of course) from their past Ponzi and bubble schemes.  What goes around comes around.  You can only go to the well so many times before it dries up.

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Facebook Insiders Dumping More Shares in IPO

Apparently, the insiders are selling more than expected private shares of Facebook’s stock in the IPO this friday.  And the insiders overall are selling a rather huge percent of their shares relative to other IPO’s.  Of course none of the money for these increased share sells will go to the company to fuel future growth, but rather the funds will go directly to the insider’s bank accounts.  Is that really a surprise?  Facebook is expected to be the largest tech IPO in history and third largest of all time.  I think this graph is very interesting.  Of course the big boys like Goldman Sachs and the larger venture capital firms are dumping more than expected and the following commentary summarizes my thoughts in regards to this decision — “The basic question you have to ask is ‘Do you want to buy a company where all the insiders are heading for the door?'” said Tim Jenkinson, professor and head of the finance faculty at the Said Business School at the University of Oxford. “The logical inference here is these guys must think that the deal is going to be fully priced.  Insiders increase sales of Facebook IPO Stock and who are the insiders cashing out

But, I also find it very interesting that the founder of LinkedIn and the founder of Zynga, Hoffman and Pincus, are also involved with the funding of Facebook and hold pre-IPO private shares.  Both Pincus and Hoffman will be cashing in some of their private shares in the IPO siphoning around $416 million into their personal bank accounts.  Hoffman is cashing out big time and Pincus just hauling in $4 million as he attempts to show some loyalty and belief in the future of Facebook which in turn determines the fate of his company Zynga.  Interesting isn’t it?  Are these guys all connected by some common interest?  They are all founders of social media and networking companies and they are all becoming billionaires through the IPO process via this brand new industry.  Strange.  Can you see how insiders help themselves become billionaires?  Can you see how insiders inflate the bubble and get rich before it pops?  Connect the dots!

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