|
|
Observing Facebook’s price action on its IPO day earlier this
week, one might have thought that fear, greed and
stupidity had taken the day off. How could the over-hyped, socko-boffo stock of the year – of the decade
– have failed to double within minutes of the opening bell? In fact,
pumped to a $38 initial-offering price, FB shares achieved only a pathetic
$45 on the opening bar before detumescing back to
$38 by day’s end. Even more dispiriting to those on the retail end of
Thursday’s relatively unfrenzied
buying was that, on day two, the stock collapsed to $33 in the early minutes
of the session, there to languish for six grueling, armpit-staining hours.
Retail suckers…er, buyers were bound to have
been disappointed, and some, more than a little churlish about it, labeled
the IPO a flop. Had the guys on Sand Hill road and their sleazy confederates
on the Wall Street Midway simply overpriced the stock, as some suggested? Or
was GM perhaps to blame for pulling its advertising from Facebook days before
the Big Event because of poor results? Some observers even speculated that
investors had finally wised up to the fact that companies with relatively
modest revenues deserve relatively modest earnings multiples.
 
That last notion, that investors have finally wised up, is
so absolutely outlandish that we were impelled to seek a better explanation.
Since when has a price/earnings multiple of 108 ever deterred buyers
salivating with greed from the certitude that a greater fool would take them
out of the stock at even richer prices?
Why No Moon Shot?
Our take is that speculators failed to achieve the expected moon shot,
not because they were at long last thinking rationally about the IPO market
in general, and Facebook in particular, but because they were weighed down
almost to the point of suffocation by a stock market in its sixth straight
day of decline — and very possibly in the nascent stage of a bear
market. If, as they say, timing is everything, then Facebook and all of the
hucksters who reaped huge profits at the expense of retail buyers simply
picked the wrong day.
This could haunt them for years to come, since the skepticism evinced
by the IPO is bound to mutate into lingering doubts about Facebook’s
revenue model. Indeed, one might ask, how will the company ramp up
advertising aggressively, exploiting a reported 900 million pairs of
eyeballs, without becoming an increasing annoyance to subscribers? More
immediately, though, the fact that the IPO laid an egg is going to invite
intensive scrutiny of the company’s quarterly earnings. It will come on
the heels of an SEC filing by Facebook that said revenues and user growth are
actually slowing. Considering all the hoopla and hubris that attended the
public offering, it already feels like it’s destined to become the bell
that rang to signal the end of the Mother of All Bear Rallies begun on Wall
Street a little more than three years ago. (Click here for a free trial to Rick’s
Picks, including actionable daily trading
recommendations and access to a 24/7 chat room that draws veteran traders
from around the world.)
|
|
