Regardless of whether anyone committed a crime, much less gets charged for one (don’t hold your breath), this ugly episode has shown very clearly how Wall Street, tech companies, and the venture capitalists who back them have been trying to inflate another bubble to enrich themselves. They were too incompetent this time to pull it off cleanly, as Audit contributor Felix Salmon shows in his “List of Incompetents,” but they did end up gouging plenty of folks.
If you were one of the suckers who bought at the open on Friday, you lost more than a quarter of your money in less than three trading days.
But the pace of the decline is what’s unusual about Facebook’s launch, not the decline itself. Here are the other major social-media (or social-ish) IPOs of the last year:
— Groupon: -55 percent since Novemeber
— Pandora: -43 percent since June
— Zynga: -28 percent since December
— Yelp: -28 percent since March
Only LinkedIn is trading above its bankers’ price level, up 7 percent since last May. And it’s not exactly a discount purchase with a price-to-earnings ratio of 627.
The rest of the above companies (except Facebook) don’t have P/E’s. They lose money.
"If it turns out that Facebook told analysts about its weakened prospects without telling the broader public in its S-1, it should be in big-time trouble."
They should, but they won't. If anything at happens, it will be the SEC doing a huge grandstanding suit, then quietly settling out of court, just like they always do, with no admission of guilt by anyone. And everything will be sealed. Just business as usual.
#1 Posted by TotallyDaft, CJR on Wed 23 May 2012 at 11:35 PM
It's not social media, but GM is also down about 40% or so from its relatively recent IPO. Chittum correctly pegged that one as a scam when it happened.
#2 Posted by Tom T., CJR on Fri 25 May 2012 at 12:42 AM
On the one hand, it's more evidence of our two-tier society, and the different set of rules the Wall Street crowd are operating under.
On the other hand, I have a hard time feeling too bad for these "mom and pop" investors, because I'm betting most of them weren't planning to buy and hold, but were hoping to flip the stock for a quick profit. They didn't get the quick profit they wanted, so now they're up in arms. If they had done any amount of research on the financial blogs about the Facebook IPO, they would have stayed far away, but their short-sighted greed and their egos pushed them into making a lousy investment. I don't condone the inside information-dealing, but I'm not going to the barricades because these investors have to actually hold onto their stock now.
Really, the behavior of the insiders and the expectations of the investors reflect a lot of what's wrong with America.
#3 Posted by MikeJake, CJR on Fri 25 May 2012 at 11:19 AM
the mom and pop investors do not stand a chance now, with the high speed computers tradinng in split seconds, its a new day in investing and it does not favor the small investor. The crooks on wall street are like vultures waiting to pounce thru manipulation and insider information, makes the mom and pop investors sitting ducks.
#4 Posted by stanley perry, CJR on Sat 26 May 2012 at 11:43 AM