Wireless Research Center

The Facebook IPO: Lessons for Us All

I'm not in the business of providing guidance on investments, but, as a businessperson, investor, former venture capitalist, and perpetual entrepreneur, it has been at best amusing to watch the process of Facebook's recent initial public offering and to marvel at just how screwed up it was - really, across the board. But the implications for the future - including the future of mobility - are what are really of interest here.

First, let's review what happened and where we are now. But, really first, I must state here that I have no affiliation with Facebook - they are not a client, I am not a user, and I am most certainly not an investor in the company. OK, that said - an IPO is the process whereby a firm sells shares - partial ownership - to the public. Facebook went through the usual process here, motivated in terms of timing, I think, by upcoming changes in the tax laws that may result in much higher taxation of capital gains. I believe Mark Zuckerberg when he says that Facebook's goals are not to be public and make a lot of people - himself included - rich. But his investors don't give a whit about social media, and obviously pushed the company to strike while the financing iron was hot and the tax iron cold.

The IPO process includes the issuance by the investment bankers involved in the deal of a prospectus called an S-1. This details what investors are really buying. There are other rules about what the bankers can say and to whom both before and for a period after the IPO. There are allegations now that the folks at Morgan Stanley tipped off their best customers that all might not have been kosher with the deal, leaving mere mortals (retail investors) out of the loop. Such, if true, would indeed be a crime. Facebook sold at a very, very high price when measured by the P/E (price to earnings ratio), and, while seasoned long-term investors might have taken note of this regardless, the general public isn't always adept at spotting value. The stock is now well below the IPO price, and lawsuits have been filed across the board, as is often the case when money is lost in the securities markets. Any investor should know that stocks do indeed go up and down, and a company doing an IPO - even a purely altruistic firm like Facebook - doesn't really want to see the stock skyrocket after the IPO. That would mean they left money on the table, and, similarly, if the stock tanks, as Facebook's did, that's an indication that the offering was overvalued by the offerers - the company and its bankers. Such leaves a bad taste in everyone's mouth and such must similarly be avoided.
Continued

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