FACEBOOK IPO: They Missed The Boat. I’ll Pass

by Darwin on January 27, 2012


Thanks, I'll Pass

Friday, news broke that Facebook was preparing to file papers for an IPO possibly as early as next Wednesday.  While just about everyone is ON Facebook, many people probably haven’t considered all the reasons this will be a bad investment for retail investors trying to jump in after the open.  Here are just a few concerns I have that are worth thinking about:

Why Now? Facebook is projecting a Billion Dollar profit in the coming year.  Why do they need to raise equity through an IPO now?  They don’t.  Owners are selling out.  Clearly, they should have gone public last year when all the other social networking and web companies were doing so at richer valuations.  On that…

Valuation – Presently, they’re valuing the company at “$75-100Billion” for the IPO.  Well, that’s a pretty wide range and pretty alarming when Facebook was fetching valuations of $100 Billion last year for private equity raises and on the secondary market.  So, if they value the company at say, $85Billion next week, that’s saying the bubble is already deflating.  You want to be and the losing side of that curve?

The Company You Keep -Speaking of all the peer companies that went public over the past year or two, how have they done post-IPO?  Well, to name a few, Pandora (P) is down 20% from its IPO price, LinkedIn (LNKD) is down 19%, and Yandex (YNDX) is down a whopping 47%.  Well, Facebook’s different, right?  They’re all different companies.  But they all have one thing in common – they are in the fast-growing, “hot and hip” segment which all went public to great fanfare, at a point when valuations were boosted by public sentiment, and then flopped.  Meanwhile, the market at large has been hot lately, so this performance is even more alarming in that light.

Growth Rate – Facebook’s huge.  So, where are they going to get all the growth they’re going to need to justify the valuation?  Probably not through subscriber growth!  It’s already a mature company and that curve is flattening out.  So, will it be better monetization?  Maybe, but if it impacts the user experience, that will be detrimental long-term.

Personally, I would have loved to have been able to invest on the secondary market years ago, wouldn’t we all?!!


Are You Investing in Facebook?



You're Not Following Darwin's RSS? Check out Why You Have to Subscribe to Darwin's Finance!

If you enjoyed this post, you can get free updates through RSS Feed or via Email whenever a new post is published. Rest assured that you can unsubscribe at any time via the automated system and your information will not be sold, archived or utilized for any other "nefarious" purposes.


1 Penny January 27, 2012 at 5:09 pm

I agree with your logic. For a while, Facebook was leading the pack. Now they seem to have fallen behind, and their efforts to catch up just aren’t working.

2 Dennis Templeton January 31, 2012 at 5:21 pm

Agree entirely. Even Twitter is passe. Look at Tumblr, rapidly growing, and whatever comes up in the next 15 minutes.

Will there ever be a model for building a great *lasting* presence on the web?

My fear is that it will be someone like Zynga, willing to steal from all and pander to the lowest.

3 Evan January 31, 2012 at 9:48 pm

I don’t know if I’ll be investing but I am excited to check out some of those financial statements!

4 Investment resources February 6, 2012 at 9:43 am

Come on, according to the valuation made by Goldman S. , the entire world should use FB.
I don’t investors will make money in the long run, only GS will !

5 Usiere February 27, 2012 at 6:15 pm

I have this feeling the Facebook bubble will burst sometime. Facebook is not everyone’s cup of tea, and although its growth has been phenomenal, future growth prospects may not be that bright. A new kid on the block can steal the thunder and like MySpace, Facebook may find itself among the has been

6 Long Term Returns February 28, 2012 at 9:15 am

Facebook has to about the easiest investment to pass up. Valued at 5x Google’s P/E, P/B, P/S and 2-3x Google’s growth while already having captured most of the internet users on the planet (meaning not much userbase growth left). To catch up to Google’s valuations Facebook would have to start seriously monetizing the user base, much more than the ads they display now. Which will of course turn plenty of users off entirely. All the while Google’s own Facebook clone (Google Plus) is growing just fine and new social networking sites like Pinterest are enjoying stratospheric growth of their own. The only way Facebook justifies these valuations is in the best-possible-case scenario. I’ll pass, thank you.

7 connie March 7, 2012 at 8:43 am

Google – to which Facebook is most often measured against in terms of potential – was valued at $23 billion at the time of its 2004 debut, or 218 times earnings.

This is my my thought about Facebook “It’s the next Google.

Comments on this entry are closed.