The Social Network: The IPO

Six possible lessons of the Facebook IPO? Investors in an IPO should be wary if:

  1. “They trust me…dumb f–ks” is a corporate slogan. (Zuck in early days…)
  2. All the insiders are selling as much as they possibly can.
  3. A tech company hasn’t transitioned well to the new platform…(mobile)
  4. The public has lots of access to shares
  5. The price and quantity of shares is ratcheted up just before the launch
  6. The CEO wears a hoodie (or a mask) to investor meetings.

Disclosure: I was deeply skeptical of the FB IPO and tweeted the Forbes article about whether FB would even exist in five years multiple times, but I was not brave enough to explore options to go short on any bounce.

The biggest issue: Will Facebook exist in five years?

Mobile IS the new platform. Facebook was dominant in the Web 2.0 world – it is having problems in mobile. To summarize: Facebook mobile is clunky and boring and currently has no ads!

In my social media marketing class I had to persuade about 10% of my students to reopen Facebook accounts. They see FB as a place to exchange pictures with grandma but not too useful on their iPods. Twitter or texts plus instagram readily replaces what Facebook did from them in the Web 2.0 days – no wonder Zuckerberg quickly doubled Twitter’s buyout offer for Instagram!

Of course FB is focused on mobile and has a legion of smart people working on it, so they can’t be ruled out. But as Forbes noted a couple of weeks before the IPO, it is a question if Google or Facebook will even be around in 5 years: http://www.forbes.com/sites/ericjackson/2012/04/30/heres-why-google-and-facebook-might-completely-disappear-in-the-next-5-years/

(It seems to me that Google is better positioned.)

The revised earnings scandal

I was not surprised to hear that “eyeballs are increasing faster than ads” at Facebook. Even though their app is clunky and boring, the world is going mobile and FB is adding users on mobile and as noted has not yet figured out how to put ads there!

It does seem tawdry for the underwriter to share info with the institutional buyers that it didn’t share with the public, so let the suits go on! But the simple fact that the deal was available to the public was an ominous sign…

“They trust me… Dumb f—ks”

The biggest worry with FB is whether it can master mobile. Issue #2 is whether it is run by grownups. Wearing the hoodie to investor meetings should have been a reminder of the startup days of Facebook. Zuckerberg in a series of IMs (he didn’t have Twitter then) told a friend that he could get him private data on nearly anyone at Harvard:

ZUCKERBERG: i have over 4000 emails, pictures, addresses, sns
FRIEND: what!? how’d you manage that one?
ZUCKERBERG: people just submitted it…i don’t know why…they “trust me”…dumb f–ks

A good question for a potential FB investor: Does Zuck respect you the way he respected his early users or his users’ privacy?

………………………….

For further insight into the founder’s character, remember how he stole the idea and perhaps some of the code as also discussed in a recent Forbes blog post by James Crotty: http://www.forbes.com/sites/jamesmarshallcrotty/2011/07/22/learning-from-the-winkelvi/

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