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Illustration by Martin Cole
By
Jonathan Weil |
Sep 6, 2012
6:30 PM ET
Who is to blame for
Facebook Inc. (FB)’s initial public offering? Is it
Mark Zuckerberg, Facebook’s founder and chief executive officer?
Someone else at the social-networking website?
Morgan Stanley (MS), the bank that led the deal?
Nasdaq, which botched the stock’s early trading?
If you lost money on
Facebook
shares, which have given up about half their value since the
company’s IPO, the answer is: none of these.
About Jonathan Weil
Jonathan Weil
joined Bloomberg News as a columnist in 2007, and his columns on
finance and accounting won Best in the Business awards from the
Society of American Business Editors and Writers in 2009 and 2010.
More about Jonathan Weil |
|
Ever since Facebook
debuted in May, only to begin plunging in value within a few days, I
hoped somebody of note would speak out publicly to take personal
responsibility for losing money on this stock, rather than pointing
fingers at others. A few days ago, it happened.
Mark Cuban, owner of the Dallas Mavericks basketball team, wrote a
post on his
blog in response to a
column in which
Andrew Ross Sorkin of the
New York Times pinned the blame on
David Ebersman, Facebook’s chief financial officer. Cuban said:
“I bought and sold FB
shares as a TRADE, not an investment. I lost money. When the stock
didn’t bounce as I thought/hoped it would, I realized I was wrong and
got out. It wasn’t the fault of the FB CFO that I lost money. It was my
fault. I know that no one sells me shares of stock because they expect
the price of the stock to go up. So someone saw me coming and they sold
me the stock. That is the way the stock market works. When you sit at
the trading terminal you look for the sucker. When you don’t see one,
it’s you. In this case it was me.”
Ringing True
Bless that man. Cuban
may be a sophisticated fellow, in the sense that he’s very wealthy and
knows the
Wall Street game, having once run and sold a public company. But his
comments ring even more true for individuals of much lesser means.
As the financial
journalist John Brooks wrote in his epic 1973 book, “The
Go-Go Years,” about Wall Street during the 1960s: “In the nature of
things, the amateur investor remains and probably will remain at a
certain disadvantage in relation to the professional. Perhaps his best
protection lies in knowledge of that fact itself.”
In spite of the
shareholder lawsuits filed against Facebook, I have seen no indication
that the company’s executives lied to the public about its performance
or prospects. Facebook’s
prospectus warned about the risks. The decline in Facebook’s rate of
revenue growth shouldn’t have surprised anyone. In 2010, sales grew
154 percent. In 2011, they rose 88 percent. By the first quarter of this
year, the year-over-year rate was 45 percent. Last quarter, Facebook’s
first as a public company, it was down to 32 percent.
So where might be the
bottom for Facebook’s shares? The stock recently was selling for about
$19, giving the company a $46 billion market value. Facebook isn’t going
broke, or at least not anytime soon. Thanks to the money it raised
through its IPO, the company had $10.2 billion, or about $4 a share, of
cash
and marketable securities as of June 30. Even in a worst-case
scenario, the stock shouldn’t drop that low, assuming Facebook doesn’t
blow all the money. The company’s $13.3 billion of shareholder equity,
or assets minus liabilities, works out to a little more than $5 a share.
Last year, Facebook
reported $1 billion of
net income. Let’s say, for argument’s sake, that Facebook deserves
to trade for 14 times that much, or $14 billion, using the earnings
multiple for a typical stock in the Standard & Poor’s 500 Index as a
guide. That’s less than one-third of the market capitalization now. And
that may be generous, considering Facebook reported a net loss last
quarter.
Long Way
While these are
simplistic gauges, they do illustrate that the stock could still have a
long way to fall. My guess is a price in the single digits might be
worth a flier, and that there is still a huge amount of risk in the
shares now. But what do I know? Trying to predict Facebook’s stock price
is like trying to guess from a distance what a helium balloon might do
next after it’s already way up in the air.
In an e-mail, Cuban said
he wrote his blog post because “I just get annoyed by talking heads in
media throwing punches without any real substance.” Asked why he bought
the stock, he said: “I thought that there would be traders who would
trade the psychology and hype of the stock. Turns out I was the only one
trading that way.” Pointing fingers at others, he said, is “the easy way
out.”
As for investing advice
for the masses, particularly on newly minted stocks, Cuban said: “You
don’t know enough to invest in individual stocks. You are gambling. If
that suits you, great. Go for it. You might win. But realize that no one
sells stocks expecting you to make money on the deal.”
So who is to blame if
you lost money on Facebook? The fault is entirely your own. This isn’t a
game for crybabies.
(Jonathan
Weil is a Bloomberg View columnist. The opinions expressed are his
own.)
To contact the writer of
this article: Jonathan Weil in New York at
jweil6@bloomberg.net
To contact the editor
responsible for this article: James Greiff at
jgreiff@bloomberg.net