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The market doesn't care about your overpriced valuation (Failbook)

williamkasel.posterous.com

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Re: The market doesn't care about your overpriced valuation (Failbook)

#31

Post by drumdance »

robbiep wrote: post #24
wkasel wrote: post #22

Earlier quoted context omitted.

Well said. You're exactly right. I didn't cover it, but the larger concern I have here is that this misguided approach could lead to distrust from wall street of any tech IPO's that aren't enterprise, or low/mid cap.

This is not a new phenomenon though. Look at tech bubble #1. hell, go back in time and look at Tulip Mania or the railroad bubble in the late 19th century. Wall Street will continue to do what is in it's interest. With average returns from Underwriting an IPO in the range of 7-9% they have to. Wall Street doesn't care that mum and pop investors get screwed - they just need to know that there are more out there that w…

I think the dot com bubble was the most damaging. Prior to that IPOs were not something the average investor would try to get in to. First day "pops" were modest and the expectation was that a company (even a tech one) should have 8 quarters of steadily improving profits prior to the offering.

Re: The market doesn't care about your overpriced valuation (Failbook)

#32

Post by drumdance »

wkasel wrote: post #10
ChuckMcM wrote: post #4

Earlier quoted context omitted.

Seems a bit snarky to me. Engineers don't price IPOs, bankers do. And because of that it reads more like "I'm really pissed off you are now rich and I am still not rich." or perhaps "I thought it was going to go through the roof and so I bought some and it didn't so I lost a lot of value and now all this stuff that I'm reading makes me look stupid for having believed it in the first place." I've mentioned elsewhere t…

Interesting assessment. I live in Silicon Valley, I don't own a share of FB, I do trade frequently. Like you, I made an assessment. My frusteration comes mostly from reading on tech blogs what Facebook "needs to do". Techcrunch acts like they are Bloomberg or something, which goes exactly with my broad brush stroked point as you said. It's actually the valuation I care about vs. the stock price, but people tend to un…

TechCrunch is entertainment, not analysis. Same goes for practically all financial media. Something tells me Warren Buffet does not watch CNBC.

Re: The market doesn't care about your overpriced valuation (Failbook)

#33

Post by rdl »

PaulHoule wrote: post #17

SV was the leader in social media three years ago but today the interesting companies, like Pinterest, are run out of places like Iowa.

I think the people who work at Pinterest's HQ in downtown Palo Alto would say they're not in Iowa anymore.

Re: The market doesn't care about your overpriced valuation (Failbook)

#34

Post by btilly »

epistasis wrote: post #20
wkasel wrote: post #8

Earlier quoted context omitted.

With all due respect, I completely disagree. If you understand the fundamentals of an IPO, as I explained below you would know that there is a 180 day lock-up period for employees, this means that employees haven't been able to sell their stock yet. When they do sell their stock it will be at $10/$15/share. The only folks who made money on the IPO were Merrill Lynch who SHORTED IT! You're typically supposed to IPO at…

No, that's wrong, the only way an initial overvaluation hurts pre-IPO investors is if the stock gets delisted, or the market is so offended that it starts caring and undervalues the company. Otherwise, employees are just fine; Since the market doesn't care, it gives them fair value when they have a chance to sell. They lose out on cashing out during the over-valuation period, but that was just free money for those th…

Not true at all.

Anyone hired after their valuation was fairly high who was given options would be given options with a high strike price. If the stock never gets there, those options are worth nothing.

A large part of the people who were hired in the last year, with apparently generous option packages, now have Facebook on the resume and no golden handcuffs holding them. And a lot of other employees who had golden handcuffs are going to be thinking about places to bail. This could give them a significant retention problem.

Re: The market doesn't care about your overpriced valuation (Failbook)

#35

Post by epistasis »

btilly wrote: post #34
epistasis wrote: post #20

Earlier quoted context omitted.

No, that's wrong, the only way an initial overvaluation hurts pre-IPO investors is if the stock gets delisted, or the market is so offended that it starts caring and undervalues the company. Otherwise, employees are just fine; Since the market doesn't care, it gives them fair value when they have a chance to sell. They lose out on cashing out during the over-valuation period, but that was just free money for those th…

Not true at all. Anyone hired after their valuation was fairly high who was given options would be given options with a high strike price. If the stock never gets there, those options are worth nothing. A large part of the people who were hired in the last year, with apparently generous option packages, now have Facebook on the resume and no golden handcuffs holding them. And a lot of other employees who had golden h…

No, that's not right (might as well make it three comments in a row :)

THere's no strike price on recent Facebook employee's equity; they receive RSUs, not stock options.

Edit: here's an article describing it a bit more: http://www.businessinsider.com/facebook-ipo-stock-price-recr... Due to many different employee's RSUs vesting in very small time window, there could be a whole bunch of other problems with flooding the market, as well as the and tax difficulties for employees that can't spread out their RSU income over multiple years.

Re: The market doesn't care about your overpriced valuation (Failbook)

#36

Post by RockyMcNuts »

Blodget made some good points:

http://www.businessinsider.com/facebook-lockup-release-2012-...

You want a high IPO price, but not so high that you can't meet expectations and disappoint. Get tagged as an underperformer and it makes it hard to do future stock acquisitions, financings, hires.

Re: The market doesn't care about your overpriced valuation (Failbook)

#37

Post by btilly »

epistasis wrote: post #35
btilly wrote: post #34

Earlier quoted context omitted.

Not true at all. Anyone hired after their valuation was fairly high who was given options would be given options with a high strike price. If the stock never gets there, those options are worth nothing. A large part of the people who were hired in the last year, with apparently generous option packages, now have Facebook on the resume and no golden handcuffs holding them. And a lot of other employees who had golden h…

No, that's not right (might as well make it three comments in a row :) THere's no strike price on recent Facebook employee's equity; they receive RSUs, not stock options. Edit: here's an article describing it a bit more: http://www.businessinsider.com/facebook-ipo-stock-price-recr... Due to many different employee's RSUs vesting in very small time window, there could be a whole bunch of other problems with flooding t…

I didn't realize that they were using RSUs. That does change the equation.

I would be curious what a tax lawyer would say about AMT liability. But AFAIK you're right, there is no problem.

Re: The market doesn't care about your overpriced valuation (Failbook)

#38

Post by h1srf »

wkasel wrote: post #8
robbiep wrote: post #6

I feel like this article misses a number of points. Firstly, the modern IPO is chiefly about giving early investors and staff an exit ticket. It is therefore in their interests to price it as high as possible. The fact that there was significant hype around the business meant that they were able to achieve this valuation. The fact that this is distinct from the original aim of the sharemarket - that is, capitalising…

With all due respect, I completely disagree. If you understand the fundamentals of an IPO, as I explained below you would know that there is a 180 day lock-up period for employees, this means that employees haven't been able to sell their stock yet. When they do sell their stock it will be at $10/$15/share. The only folks who made money on the IPO were Merrill Lynch who SHORTED IT! You're typically supposed to IPO at…

Merrill shorted FB at the IPO? I seriously doubt that. First of all, I don't think there would be enough inventory to borrow for a few days. Secondly, the borrow cost would have been astronomical for those first few days. There was a WSJ article that talked about the borrow dropping from 40% to 6% about a week after the IPO. Are you talking about that period?

Re: The market doesn't care about your overpriced valuation (Failbook)

#39

Post by robbiep »

h1srf wrote: post #38
wkasel wrote: post #8

Earlier quoted context omitted.

With all due respect, I completely disagree. If you understand the fundamentals of an IPO, as I explained below you would know that there is a 180 day lock-up period for employees, this means that employees haven't been able to sell their stock yet. When they do sell their stock it will be at $10/$15/share. The only folks who made money on the IPO were Merrill Lynch who SHORTED IT! You're typically supposed to IPO at…

Merrill shorted FB at the IPO? I seriously doubt that. First of all, I don't think there would be enough inventory to borrow for a few days. Secondly, the borrow cost would have been astronomical for those first few days. There was a WSJ article that talked about the borrow dropping from 40% to 6% about a week after the IPO. Are you talking about that period?

No h1srf I don't know anything about merrill shorting it, I was responding to wkasel's assertion in the second post of this thread that they did so. I have done no research regarding shorting on fb in this period.

However Morgans would have made a double killing in the post-ipo period having oversold the allocation and now being able to fill those orders cheaply on the secondary market (assuming they didn't issue new stock to fill the orders)

Re: The market doesn't care about your overpriced valuation (Failbook)

#40

Post by robbiep »

wkasel wrote: post #19
robryan wrote: post #15

Earlier quoted context omitted.

That is the same though as investors buying in at $38. Employees could always choose to negotiate the grants or leave if they think they are bad value.

The root of my argument though is that as Silicon Valley know-it-alls we assumed the world would gawk in awe of our amazing creation and throw money at us, which it did not. It's a shame you can't buy put's on that, because THAT would have been worth it. :)

Si. I really think the role of history here is important- there is nothing new or especially important about the current burst of innovation, or as Joseph Shumpeter termed it, creative destruction. We are just in another phase of human and economic history- and the valley is a remarkable centre of a lot of this innovation. However the same rules of hype, hyperbole, boom and bust that have governed all pervious cycles of human history still work in the information age. So none of this is new, and it won't be the last time it all happens either!
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