4 ms·

I'm glad about this. If we had trading that quickly doubled or tripled the market cap then that may well be evidence of unsustainably high valuations (I hesita

by cletus 14y ago

I'm glad about this. If we had trading that quickly doubled or tripled the market cap then that may well be evidence of unsustainably high valuations (I hesitate to use the word "bubble" [1] as it's largely a baseless pejorative at this point). That being said, some say this is evidence of FB being fairly priced. I disagree on two points: 1. Pre-IPO investors expect an immediate return. Investment banks ("IBs") underwriting IPOs will be selling those shares to their most valued clients (in large part). Those clients expect an immediate return. Also there is a nontrivial number of "stag" investors in IPOs (investors who do first-day sales to trade on this bump); 2. The IPO itself can in large part in set the tone. A stock that jumps 50% on IPO sets expectations as a stock that's going places. A stock that drops can have everyone for the hills and a stock that's level can just make everyone nervous (becoming a prisoner's dilemma); 3. There's evidence the IBs are propping up the stock at issue price levels; and 4. Current investors will have a lock-out period from selling. This may be 6 or 12 months. Whatever the case, if supply meets demand now then extra supply suggests a price drop may be coming when that lock-out period ends. Consider this: Even Groupon jumped 25% on first-day trading. Now I'm not predicting doom and gloom here. In all honesty I have no idea what will happen with the stock. I do consider it a high-risk investment at this point and personally I wouldn't touch it. YMMV. It may still be spectacularly well. OTOH it could be the Beijing Olympics of the tech sector (the Beijing Olympics being essentially the turning point of the economy in 2008). Trading at a P/E of ~100:1 is high risk. Make no mistake. Facebook has important strategic issues they need to deal with. Anyway, to those early employees, congratulations. This will change the life for many (and already has). I'm particularly glad to see that Zuck didn't pull a Pincus [2]. This speaks highly of him IMHO. [1]: http://news.ycombinator.com/item?id=3987892 http://news.ycombinator.com/item?id=3987892 [2]: http://online.wsj.com/article/SB10001424052970204621904577018373223480802.html http://online.wsj.com/article/SB1000142405297020462190457701...

aufreak3 14y ago
Having read Dan Ariely's post about "a note to Zuckerberg..." (http://danariely.com/2012/05/16/the-facebook-ipo-a-note-to-mark-zuckerberg-or-with-friends-like-morgan-stanley-who-needs-enemies/ http://danariely.com/2012/05/16/the-facebook-ipo-a-note-to-m...), I think the title better rephrased as "facebook IPO succeeds in not 'popping'..." instead! Edit: I would summarize the post, but I would then spoil some of the drama of reading it as written.
zmj 14y ago
Layperson question: what does it matter? What impact does Facebook's valuation have on its day-to-day business, now that they have the IPO cash in hand?
- JamesPeterson 14y ago
  The shareholders control the board, and the board controls management. Thus, unhappy shareholders will mean new management. In FB's case however, Zuck still controls (through proxy) the majority of votes; Zuck cannot be ousted. There are other problems with a non-performing stock too; employee morale may be (and is increasingly?) tightly related to the share options they own. If management is not performing well and costing their employees money (!) that can ruin morale. This doesn't just involve Facebook; currently the market is pretty bullish on web companies. It can quickly turn bearish, restricting the capital that currently flows so free.
  - jrockway 14y ago
    Do Facebook employees get options, or do they get actual stock?
    - JamesPeterson 14y ago
      Typically, they'll be offered options to buy stock for essentially nothing. Often there will be tricks though - for example it might take a couple of years in employment to be able to exercise all of the options.
- cletus 14y ago
  Bear in mind that they don't have all that cash. Some early investors and founders are taking some of that money off the table (which is fine). According to [1] over half the money is going to existing stockholders rather than the company. That being said, Facebook doesn't actually need the cash for anything (apparent). It is profitable and can hire and build data centers. For a company in Facebook's position, any large cash pile is likely to be used for acquisitions more than anything else. But the share price still matters. It affects the company's ability to attract and retain talent. In the 90s Microsoft did amazingly well from this. IIRC at the time an employee's stock options were price at the lowest closing price in the month after they joined. This meant that someone who joined in around 1990 could buy MSFT at less than $1 when it was trading at 50-100 times. It is very hard for someone to leave in that kind of position. AFAIK option vesting and pricing has changed somewhat since then (typically with the whole 4 year vest and 1 year cliff) such that early employees are probably fully-vested. Later share parcels won't be anywhere nearly as attractive. So those employees will stay basically as long as it's fun because it's not about the money anymore. Then again, good luck motivating such people to do shitty jobs. Facebook is now (IMHO) beyond the point where stock can be considered a lottery ticket anymore. Even it becomes a trillion dollar company that's still only 10x. At this point, a potential employee can simply multiply his or her RSU (restricted stock unit) allotment by the current price divide it by the vesting period and add that to base compensation plus target bonus to work out total comp. Zuck still holds 57% of the voting power in Facebook so really the stockmarket doesn't matter much at all to Facebook. It's still Zuck's company and he can (within reason) do what he likes with it. That seems to be a tech company norm and probably a good thing based on the short-term narrowsighted thinking that seems to dominate Wall Street (just look at Yahoo). TL:DR effect on FB = not a lot. [1]: http://online.wsj.com/article/SB10001424052702303448404577407774136362662.html http://online.wsj.com/article/SB1000142405270230344840457740...
ChuckMcM 14y ago
"4. Current investors will have a lock-out period from selling. This may be 6 or 12 months. Whatever the case, if supply meets demand now then extra supply suggests a price drop may be coming when that lock-out period ends." So if you are a speculator, unlike with Groupon and their miniscule float, you can take a short position. I don't recommend it, there is the old joke about how long the market and stay irrational, but if you've got a couple hundred thousand you don't mind losing you can now at least make the bet. One of my favorite pastimes is a sort of Fantasy Hedge Fund game where I manage a $10M hedge fund and try to out perform the S&P 500. This kind of play fits right into that.

by cletus 14y ago

aufreak3 14y ago

Having read Dan Ariely's post about "a note to Zuckerberg..." (http://danariely.com/2012/05/16/the-facebook-ipo-a-note-to-mark-zuckerberg-or-with-friends-like-morgan-stanley-who-needs-enemies/ http://danariely.com/2012/05/16/the-facebook-ipo-a-note-to-m...), I think the title better rephrased as "facebook IPO succeeds in not 'popping'..." instead! Edit: I would summarize the post, but I would then spoil some of the drama of reading it as written.

zmj 14y ago

Layperson question: what does it matter? What impact does Facebook's valuation have on its day-to-day business, now that they have the IPO cash in hand?

JamesPeterson 14y ago
The shareholders control the board, and the board controls management. Thus, unhappy shareholders will mean new management. In FB's case however, Zuck still controls (through proxy) the majority of votes; Zuck cannot be ousted. There are other problems with a non-performing stock too; employee morale may be (and is increasingly?) tightly related to the share options they own. If management is not performing well and costing their employees money (!) that can ruin morale. This doesn't just involve Facebook; currently the market is pretty bullish on web companies. It can quickly turn bearish, restricting the capital that currently flows so free.
- jrockway 14y ago
  Do Facebook employees get options, or do they get actual stock?
  - JamesPeterson 14y ago
    Typically, they'll be offered options to buy stock for essentially nothing. Often there will be tricks though - for example it might take a couple of years in employment to be able to exercise all of the options.
cletus 14y ago
Bear in mind that they don't have all that cash. Some early investors and founders are taking some of that money off the table (which is fine). According to [1] over half the money is going to existing stockholders rather than the company. That being said, Facebook doesn't actually need the cash for anything (apparent). It is profitable and can hire and build data centers. For a company in Facebook's position, any large cash pile is likely to be used for acquisitions more than anything else. But the share price still matters. It affects the company's ability to attract and retain talent. In the 90s Microsoft did amazingly well from this. IIRC at the time an employee's stock options were price at the lowest closing price in the month after they joined. This meant that someone who joined in around 1990 could buy MSFT at less than $1 when it was trading at 50-100 times. It is very hard for someone to leave in that kind of position. AFAIK option vesting and pricing has changed somewhat since then (typically with the whole 4 year vest and 1 year cliff) such that early employees are probably fully-vested. Later share parcels won't be anywhere nearly as attractive. So those employees will stay basically as long as it's fun because it's not about the money anymore. Then again, good luck motivating such people to do shitty jobs. Facebook is now (IMHO) beyond the point where stock can be considered a lottery ticket anymore. Even it becomes a trillion dollar company that's still only 10x. At this point, a potential employee can simply multiply his or her RSU (restricted stock unit) allotment by the current price divide it by the vesting period and add that to base compensation plus target bonus to work out total comp. Zuck still holds 57% of the voting power in Facebook so really the stockmarket doesn't matter much at all to Facebook. It's still Zuck's company and he can (within reason) do what he likes with it. That seems to be a tech company norm and probably a good thing based on the short-term narrowsighted thinking that seems to dominate Wall Street (just look at Yahoo). TL:DR effect on FB = not a lot. [1]: http://online.wsj.com/article/SB10001424052702303448404577407774136362662.html http://online.wsj.com/article/SB1000142405270230344840457740...

ChuckMcM 14y ago

"4. Current investors will have a lock-out period from selling. This may be 6 or 12 months. Whatever the case, if supply meets demand now then extra supply suggests a price drop may be coming when that lock-out period ends." So if you are a speculator, unlike with Groupon and their miniscule float, you can take a short position. I don't recommend it, there is the old joke about how long the market and stay irrational, but if you've got a couple hundred thousand you don't mind losing you can now at least make the bet. One of my favorite pastimes is a sort of Fantasy Hedge Fund game where I manage a $10M hedge fund and try to out perform the S&P 500. This kind of play fits right into that.