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Facebook: The future or muppet bait?

May 17, 2012

None of the scepticism surrounding the Nasdaq IPO of Facebook, including mine, has diluted the market’s enthusiasm and now the price range has been lifted – valuing the business at about $105 billion – and the amount of stock for sale has been increased 25 per cent, so the company will raise about $17 billion.

Among those now off loading a much larger part of their stake than previously is Goldman Sachs; in fact it has doubled its sale. When professional investors leave – presumably believing they have made a full return on investment – is this really a cue for retail (i.e. amateur) investors to pile in? Apparently it is.

Goldman Sachs, remember, is the institution which, according to one of its own, referred to its investor clients as ‘muppets’, muppets to whom it sold securities that it had already hedged because it was sure they would fall. US financial blogger Henry Blodget has now referred to the Facebook IPO as classic ‘muppet bait.’

With no fundamentals to judge or record to rely on – the valuation will put Facebook on the same level as Vodafone which made 14x its profit last year – this is a cultural event, a leap of faith that the zeitgeist of social media is a permanent and monetizable phenomenon. Oh, and that Mark Zuckerberg is The Man to deliver it. That must be some key man insurance policy.

So why can’t everyone just get on board and share the love? Because, like all belief systems, the more you look the more you doubt. One analyst described Facebook as a high wire act; it will only make the kind of money that comes near to justifying that valuation if it always, and equally, pleases two constituencies that are not necessarily compatible; the members and the advertisers. Another market watcher warned: “This company has been priced for perfection and then some. It’s going to be very difficult for them to live up to that.”

Quarter revenues were stagnant and predicted to stay so for another quarter. Membership growth has flattened. There is evidence users in key growth market like China and S.E. Asia are choosing other networks. Earlier this week, General Motors announced it would no longer pay to advertise on Facebook.
Sure, I would love to own some Facebook stock, and right now I would be an enthusiastic seller.

Categories: Blogs, Nick Snow, Social Media