Political & pop culture analyst
a lot of small investors are saying four days after the social
networking behemoth's highly anticipated IPO went bust for them while
creating massive wealth for a minuscule bunch of insiders, venture
capitalists and institutional investors. And what has Wall Street
apparently learned since the go-go days of the banking crisis?
The stock, which went out at $38.00 per share, has fallen off a cliff
since Friday, dropping 18% from the offering price. Shares were
overpriced, oversold and brought to market under very dubious
circumstances. As a result, the IPO, and its lead underwriter Morgan
Stanley, is under investigation by the SEC, the Financial Industry
Regulatory Authority and the Massachusetts Secretary of State, whose
office subpoenaed the banker over its discussions with investors over
the offering. All of this on the heels of news that Morgan, just prior
to the IPO, advised its elite clients of its appreciably lowered revenue
estimates for Facebook. The NY Times reports
that one such investor dumped his entire position at $42 per share
after learning of the revised forecast. Once again, Wall Street's
privileged fatcats get in and out with hefty profits while the
proverbial little guy, operating in an information vacuum, gets screwed.
Facebook, valued by the Street at over $100 billion, about $100 times
earnings, has serious challenges in monetizing its 900-million
membership and ultimately growing into this stratospheric valuation. The
company itself has warned investors that it's having trouble figuring
out how to make money from mobile advertising. Its members are
increasingly using the service on mobile devices, yet Facebook doesn't
quite know how to build its mobile ad business without cluttering its
pages and negatively impacting members' experience with the service.
Underscoring this potentially massive problem for Facebook was
General Motors' decision last week to cancel its $10-$40 million ad
spend with the company. When one of the country's largest advertisers
tells you they can't make money with you, that's not a good sign.
Especially when you're trying to convince investors that your colossal
valuation is justified by future ad sales.
The controversy surrounding Facebook's IPO, and how certain Wall
Street investors received critical information about the company while
those on Main Street didn't, further demonstrates the need for greater
scrutiny and regulation of the type of cowboy trading practices that
nearly destroyed our economic system four years ago.
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