4 ms·

The early investors made out like kings, but I doubt Facebook's employees are in a cheery mood as they watch their options sink underwater and their vested pape

by gamble 14y ago

The early investors made out like kings, but I doubt Facebook's employees are in a cheery mood as they watch their options sink underwater and their vested paper wealth dissipate while waiting for the lockup period to end.

birken 14y ago
Isn't that the fault of the private investors for overvaluing Facebook? Presumably all granted options had a strike based based on the current private valuation, which clearly the public market doesn't agree with (without judgement as to whether the public market is right or wrong).
- jcdavis 14y ago
  From what I understand (not an FB employee, but know several) the stock grants in the last ~3 years have been RSUs not options, which at least means they can't be underwater
- gamble 14y ago
  Yep, but it's still a problem for the company. Facebook has been on a hiring spree, backed by an implicit promise that anyone in before the IPO would be practically guaranteed to make a buck. If the IPO is still a bust by the time the lockup expires in 3-6 months, it's going to be an HR problem. Of course, it depends on how Facebook actually structures its compensation packages. RSU are more popular with most companies these days than stock options, so they may just be looking forward to a smaller payday than worthless options.
bdr 14y ago
I'm skeptical that FB would be higher today if it had IPOd lower.
- dredmorbius 14y ago
  It would be higher relative to the IPO price. Among other things, this means that employee options would still be above water. Rather more motivating than underwater options after years of death-march hours.
  - zeroonetwothree 14y ago
    All employees since 2008-ish have gotten RSUs, not options.
    - dredmorbius 14y ago
      Thanks. I never checked my FB options package. Largely on account of not receiving one.
  - deleted 14y ago
    [deleted]
  - planetguy 14y ago
    Wait, I don't understand this bit. Surely the employees don't have options with a face value of $38, do they?
    - dredmorbius 14y ago
      Two bits. No, the strike likely isn't 38. But downward valuation on stocks or options decreases their value. If options were granted (and apparently this isn't the case at FB, see the RSU comment -- restricted stock units), then there would be _some_ strike value. Often shares are granted at some price as well (though it's frequently at some nominal "par" value, typical $0.01). With options, it's possible for employees to end up with no value at all. In some cases, companies have re-issued "above-water" grants, though this has been frowned on in recent years. With stock, again, you have the situation of sitting on, say, a few hundred or thousand shares, and watching your paper worth drop from $40k to $20k to .... Now, according to Zuck, that's not cool money, but to your typical Valley engineer, it's still plenty green, and hurts to see it wash away.
tedunangst 14y ago
I'd like for someone to explain precisely what Facebook should have done to ensure a big pop. Value the shares at $5? What if their internal projections indicated the company was worth more than that? Picking an artificially low strike price for the options probably would have resulted in people going to jail, not to mention all the employees owing taxes on the difference.
- betterth 14y ago
  From what I've seen, it was hugely overvalued. Maybe $25-$50 billion, with a share price of $28-$32. Last minute change to $38+ was suicide.
  - binarysolo 14y ago
    If you wanted to value it at $25-$50B, the share price would accordingly be $12-$24. Remember market cap = total shares * price. :)
    - betterth 14y ago
      You assume that the number of shares being offered was static, hence the price drop by half. More realistically, Facebook should have sold less shares, which would have kept the price at that target. But I guess it couldn't sell less: they had a bucketload of people who wanted to sell, and all the biggest potential buyers had already bought... Lesson learned: don't get talked into secondary market abuse...
      - binarysolo 14y ago
        Maybe I've had too much coffee so I'm not understanding your comment, but market cap is based on total outstanding shares, whether they were being sold on the market or not. 10 stocks issued total, company's value doesn't inherently change based on whether 5 stocks are sold in public vs 10 vs 1. Sure I get the supply and demand thing you're trying to articulate, but the reality is that I as an investor am concerned that FB is overvalued at 100B marketcap, whether the shares are sold at $1 or $10000.

by gamble 14y ago

birken 14y ago

Isn't that the fault of the private investors for overvaluing Facebook? Presumably all granted options had a strike based based on the current private valuation, which clearly the public market doesn't agree with (without judgement as to whether the public market is right or wrong).

jcdavis 14y ago
From what I understand (not an FB employee, but know several) the stock grants in the last ~3 years have been RSUs not options, which at least means they can't be underwater
gamble 14y ago
Yep, but it's still a problem for the company. Facebook has been on a hiring spree, backed by an implicit promise that anyone in before the IPO would be practically guaranteed to make a buck. If the IPO is still a bust by the time the lockup expires in 3-6 months, it's going to be an HR problem. Of course, it depends on how Facebook actually structures its compensation packages. RSU are more popular with most companies these days than stock options, so they may just be looking forward to a smaller payday than worthless options.

bdr 14y ago

I'm skeptical that FB would be higher today if it had IPOd lower.

dredmorbius 14y ago
It would be higher relative to the IPO price. Among other things, this means that employee options would still be above water. Rather more motivating than underwater options after years of death-march hours.
- zeroonetwothree 14y ago
  All employees since 2008-ish have gotten RSUs, not options.
  - dredmorbius 14y ago
    Thanks. I never checked my FB options package. Largely on account of not receiving one.
- deleted 14y ago
  [deleted]
- planetguy 14y ago
  Wait, I don't understand this bit. Surely the employees don't have options with a face value of $38, do they?
  - dredmorbius 14y ago
    Two bits. No, the strike likely isn't 38. But downward valuation on stocks or options decreases their value. If options were granted (and apparently this isn't the case at FB, see the RSU comment -- restricted stock units), then there would be _some_ strike value. Often shares are granted at some price as well (though it's frequently at some nominal "par" value, typical $0.01). With options, it's possible for employees to end up with no value at all. In some cases, companies have re-issued "above-water" grants, though this has been frowned on in recent years. With stock, again, you have the situation of sitting on, say, a few hundred or thousand shares, and watching your paper worth drop from $40k to $20k to .... Now, according to Zuck, that's not cool money, but to your typical Valley engineer, it's still plenty green, and hurts to see it wash away.

tedunangst 14y ago

I'd like for someone to explain precisely what Facebook should have done to ensure a big pop. Value the shares at $5? What if their internal projections indicated the company was worth more than that? Picking an artificially low strike price for the options probably would have resulted in people going to jail, not to mention all the employees owing taxes on the difference.

betterth 14y ago
From what I've seen, it was hugely overvalued. Maybe $25-$50 billion, with a share price of $28-$32. Last minute change to $38+ was suicide.
- binarysolo 14y ago
  If you wanted to value it at $25-$50B, the share price would accordingly be $12-$24. Remember market cap = total shares * price. :)
  - betterth 14y ago
    You assume that the number of shares being offered was static, hence the price drop by half. More realistically, Facebook should have sold less shares, which would have kept the price at that target. But I guess it couldn't sell less: they had a bucketload of people who wanted to sell, and all the biggest potential buyers had already bought... Lesson learned: don't get talked into secondary market abuse...
    - binarysolo 14y ago
      Maybe I've had too much coffee so I'm not understanding your comment, but market cap is based on total outstanding shares, whether they were being sold on the market or not. 10 stocks issued total, company's value doesn't inherently change based on whether 5 stocks are sold in public vs 10 vs 1. Sure I get the supply and demand thing you're trying to articulate, but the reality is that I as an investor am concerned that FB is overvalued at 100B marketcap, whether the shares are sold at $1 or $10000.