Is the Facebook IPO headed lower to $14?

I had strongly advised my readers in April not to buy or trade the Facebook IPO as I simply did not believe that its business model, slowing revenue metrics, governance, or mobile monetisation probabilities remotely justified a $100 billion post IPO valuation.

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Published: Mon 27 Aug 2012, 5:57 PM

Last updated: Tue 7 Apr 2015, 12:03 PM

Good call. Facebook has now lost 50 per cent of its value three months after its floatation. I was horrified to see some global and UAE banks offer Facebook to their high net worth clients as a private banking offering. I expect the high net worth client are no longer either high net worth, and possible no longer even clients.

Is the Facebook lockup tsunami over? No. More than 1.2 billion shares will be available for sale by December. Accel Partners, the venture capital fund that financed Zuckerberg, felt no moral qualms to unload $1 billion in restricted shares on the public shareholder. Peter Thiel invested $500,000 in Series A financing round and cashed out a cool $1 billion. Insiders sold billions of shares in the May IPO in Silicon Valley’s social media rigged game. However, I am mystified. If I figured out the Facebook IPO was a lemon and publicly wrote about in this column (“don’t trade the Facebook IPO”), what were the banks with battalions of due diligence executive doing selling it to retail investors in the Textile/Gold Souk? Surely there is something deeply flawed in the whole process?

Few investors realise that IPO’s disproportional benefit insiders and their investment bankers, who engineer artificial supply squeeze or shortage in the shares. This was the case in the GCC IPO mania when entire football stadiums filled up to buy rigged deals 500 times oversubscribed, where corporate issuers made more money in interest income than banks received in IPO proceeds. Game, set, match, cake, icing and candle to Mr Insiders? Tears for Mr Outsiders (the public). I can think of as surer way to kill an embryonic equity culture, as the history of the GCC stock exchanges since 2006 attests.

It is financial suicide to bottom fish in Facebook when insiders are still selling and Zuckerberg has totally missed the boat in mobile (for now). Facebook still trades at 35 times earnings even after its catastrophic fall, a massive and unjustified valuation premium to Google and Apple. The average Facebook insider who sells the next billion share got his shares for free or $2, not the $38 paid by Joe Habibi at the IPO (plus private banker entry, exit placement, leverage, Swiss tax and structured fees). In any case, social media as an asset class has bout as much credibility as Chinese reverse IPO companies on Nasdaq with complex Confucian abacus and noodles accounting.

Sure, Facebook has 900 million users but its active users are migrating to mobile, where advertising revenues are miniscule so EPS, growth and operating margins expectations embedded in Facebook shares at its stratospheric valuations can and will come down. My call? Facebook shares could fall to $14-$15 by December. When am I tempted to buy Facebook? At 15 times 2003 earnings or somewhere near $8. Something is terribly wrong in a private banking market when a newspaper column disses the most hyped, inflated, marketed IPO in town, while private banks just buy the same hyped Mena equities, name lending, real estate flipping, rigged IPOs. The song remains the same but who is listening to the song of banksters?

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