“May I help you?” I asked the mature woman who struggled with the gas pump. We chatted as I filled her tank, and she asked, “What do you think about Facebook?” I’m no fan of giving advice to strangers. But the social media giant is a hot topic. The hype and ruckus of Friday’s IPO was fresh. The lawsuits and complaints are mounting. I shared an analyst’s comment … ‘Say Apple was priced using similar multiples for FB’s $38 offering price – Would you buy Apple today for $4,300?’ That seems crazy. Maybe the future price will be higher. However, she regretted not buying Apple years ago, and was excited owning some FB shares. As she got in her car, I replied, “You’re 80, still driving, and own FB… seems like a pretty good place.”
The Social Network II (or possibly “Got Zucked”) should be a box office smash with debacles and side stories:
• Blurry video feeds from Menlo Park as Mr. Zuckerberg rang the opening bell among a fist pumping crowd.
• Allegedly, CFO agreed to increase the number of shares in the IPO by 25% just days earlier.
• Reports that underwriters Morgan Stanley and Goldman Sachs had downgraded their earnings estimates.
• Widely anticipated IPO sputtered; trading delayed 30 minutes. Stock closes up 23 cents on Friday, and currently trades about 18% lower.
• Nasdaq OMX Group says it would have delayed the IPO had it known the problems.
• Facebook and banks are sued for concealing from investors “a severe and pronounced reduction” in revenue growth forecasts, or selectively disclosing those revisions to certain preferred investors.
• Traders and brokers seek compensation for losses due to mishandled trades.
• Regulators including the SEC and FINRA are investigating ‘issues.’
• Facebook faces uphill battles of regaining brand reputation, “monetizing” its user base without alienating fans, and delivering quarterly performance in the public world.
Meanwhile, I’m reminded:
• The game rigged? We want level playing fields, fair dealing, full disclosure, etc. (i.e. enforcement of regulations). But life’s seldom fair. Some people “just don’t get it” and greed or corruption emerges. Probably best for the accused to settle quickly, take the hits, and get on the road of personal responsibility. To other side, if you’re going to sue FB, why did you buy?
• Hype, buzz and sizzle make for sexy stories. Eventually the honeymoon’s over. Investments are ultimately valued in a very boring way – their ability to generate cash flow. And the internet and social media are dynamic and take different analytic perspectives. You may need to consider competition from ideas that don’t exist today.
• Should you own FB (or XYZ)? Perhaps. When’s your kid going to college and what’ll she need? What’s it going to take for you to retire with dignity and independence? What shall you leave for future generations or important causes? FB shares or other investments may fit in your investment plan… which is driven by your financial plan.
I smiled as the lady at the gas pump drove away – a woman appearing to be in pretty good shape health-wise and financially. I bet she didn’t make many ‘big investor mistakes’ along the way.