Why the Facebook IPO was a Dud

If you are a fan of The Social Network, as I am, you remember the moment when Sean Parker’s eyes light up as he tells Zuckerberg not to think a ‘million’, to think a ‘billion.’

Or how about 100 billion?

Say what?

Sure, many will continue to claim that NASDAQ is to blame but that is just sugar coating an IPO that was likely doomed before the bell sounded.

Bottom line? Too many sellers and shares, not enough buyers, over-valued stock.

Bungled from the Start

Best clue to problems came less than a week before the IPO when they raised their initial stock price almost a full $10 while increasing the number of available shares – pretty clear sign they were drinking their own Kool-Aid, getting real greedy over there .

For when they did that, they pushed their valuation above a hundred billion, far above the norm – public companies with a $100 billion valuation average $70 billion annually in revenue.

In other words, they valued themselves above McDonalds – leaving the stock unable to pass the ‘stink’ test.

Seems they believed they could ride the hype, set their price, cash in – vanity is definitely my favorite sin.

But the truth is you can’t paper over the facts with a hype machine, going public means we can see that Facebook’s active membership growth has gone from over 150% in 2009 to 8.9% this year.

And isn’t the ‘growth trend’ that with which we judge potential investments?

It is…but only relevant here if you were one of the lucky few selling shares at the opening bell.

And that’s the truth, at last: shares of Facebook were not bought that day, they were sold and sold good…by Bono.

A ‘beautiful day’ indeed.