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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)

#41

Post by robbiep »

jussij wrote: post #25
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…

> but that was just free money Except the employees would have been sacrificing a higher salary for these shares so they where hardly free. > The only people hurt by the initial over valuation were the people that bought high The people that got burnt where those that read the IPO document and assumed it was not a work of fiction. The people that made money where insider trading on information not yet public. The oth…

Your post kind of suggests that this was the first major company to ever be overcapitalised and incorrectly valued. This is patently not the case. The people that bought into the FB IPO did so out of their own free will. That they believed the valuations is down to the hype surrounding the FBIPO and the hard work of the underwriters to convince investors of the strength of their case. There are 2 types of investors, informed and uninformed. These were uninformed investors. They operate under the principle that they can exceed the average market return (i.e. they don't understand the efficient markets hypothesis).

The market doesn't make these mistakes, the investors do. The market is the mechanism by which mistakes in valuation are discovered, as the IPO trends towards its fair value.

The fact that these are bad for the credibility of the market does not deter wall street for looking out for more sources of revenue (in the form of underwriting IPOs). It may make companies thinking of raising cash on the market think again - ('Is our valuation correct? How can we avoid being overhyped?') but in the long run this is nothing different to what has happened in hundreds of IPOs in hundreds of stock markets in hundreds of companies over the past several hundred years.

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

#42

Post by pbreit »

wkasel wrote: post #22
aniro wrote: post #18

Earlier quoted context omitted.

In this case "extract maximum returns for the early investors" means that a whole lot of people got ripped off. The notion that "the modern IPO is chiefly about giving early investors and staff an exit ticket" is a near perfect example of how "Silicon Valley, I hate to say it, has its head so far up its ass that it's eating its own bullshit." The investors purchasing Facebook at IPO and after are not looking to rewar…

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.

Facebook is a once-in-a-decode or -generation thing. Unwise to extrapolate too far on it.

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

#43

Post by pbreit »

wkasel wrote: post #11
wkasel wrote: post #7

Earlier quoted context omitted.

Logical explanation, however the point of an IPO is not just liquidity in for your employees, but also to raise money for the company, and allow the public to buy in. If you don't price it so the price goes up, then you're doing everyone, even your shareholders a dis-service because they have a 180 day lockup period, so when the stock is at $15/share at the end of lockup, you actually screwed employees as well. The o…

Fair, but the only problem I see with your reasoning is stock grants were being issued as far back as 18 months ago at $25/share, which means that those employees DID lose money.

I don't think it's appropriate to call it "losing money" when one does not have the ability to sell. Probably a bad analogy but it might be like saying a baseball team lost the game because it had fewer runs in the 5th inning.

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

#45

Post by wkasel »

pbreit wrote: post #44

This is a stupid argument. The character "flaws" the author cites are basically why much of the technological progress of the past several decades originated in Silicon Valley.

Let's not use the word stupid. I live and work in this ecosystem. If you saw what I saw you would agree.

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

#46

Post by wkasel »

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?

I back everything up with facts amigo. They shorted it $2.4B.

http://blogs.reuters.com/felix-salmon/2012/05/21/morgan-stan...

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

#47

Post by pbreit »

wkasel wrote: post #45
pbreit wrote: post #44

This is a stupid argument. The character "flaws" the author cites are basically why much of the technological progress of the past several decades originated in Silicon Valley.

Let's not use the word stupid. I live and work in this ecosystem. If you saw what I saw you would agree.

You're lecturing me about language? I've seen as much or more and I think "stupid" is the correct word. The supposed "flaws" you mention are the exact attributes that have made Silicon Valley the originator of much of technological progress in the past few decades. Selecting a once-in-a-decade company to extrapolate from is, well, stupid.

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

#48

Post by josephlord »

robbiep wrote: post #41
jussij wrote: post #25

Earlier quoted context omitted.

> but that was just free money Except the employees would have been sacrificing a higher salary for these shares so they where hardly free. > The only people hurt by the initial over valuation were the people that bought high The people that got burnt where those that read the IPO document and assumed it was not a work of fiction. The people that made money where insider trading on information not yet public. The oth…

Your post kind of suggests that this was the first major company to ever be overcapitalised and incorrectly valued. This is patently not the case. The people that bought into the FB IPO did so out of their own free will. That they believed the valuations is down to the hype surrounding the FBIPO and the hard work of the underwriters to convince investors of the strength of their case. There are 2 types of investors,…

It is quite possible to understand the efficient market hypothesis and not believe it. In fact I think that everyone who invests in the market in forms other than tracker funds doesn't believe it holds.

The efficient market hypothesis is a useful thought experiment but the assumptions required for its proof are unrealistic and it doesn't explain real world volatility.

I do think the thought process of 'what do I know that the market hasn't taken into account yet' is a useful one and that if the answer is nothing buy a tracker. The knowledge could be proper research that disagrees with the media about a company.

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

#49

Post by jussij »

robbiep wrote: post #41
jussij wrote: post #25

Earlier quoted context omitted.

> but that was just free money Except the employees would have been sacrificing a higher salary for these shares so they where hardly free. > The only people hurt by the initial over valuation were the people that bought high The people that got burnt where those that read the IPO document and assumed it was not a work of fiction. The people that made money where insider trading on information not yet public. The oth…

Your post kind of suggests that this was the first major company to ever be overcapitalised and incorrectly valued. This is patently not the case. The people that bought into the FB IPO did so out of their own free will. That they believed the valuations is down to the hype surrounding the FBIPO and the hard work of the underwriters to convince investors of the strength of their case. There are 2 types of investors,…

I have no problem with that fact that the IPO was a disaster. As you point out this has happened before and it will happen again.

What I don't like is the FB prospectus was never a true and accurate representation of the company and everyone on the inside knew this, but they failed to tell the public.

And what's worse is these 'well informed' insider investors then illegally used this inside information to make lots of money since they new the IPO was over valued and went short.

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

#50

Post by joshuahong100 »

Wow.. to the top level commenters who rationalize the merits of the Facebook IPO as successful in extracting the maximum amount of money for investors and employees.. this is the type of logic that warrants the criticisms thrown at Silicon Valley.

Not withstanding the fact that the redistribution of wealth was based on 'hype' and just a douchy move, does no one seem to understand that the IPO market will inexorably implode yet again through such self-serving actions, thereby closing future IPO opportunities for companies with real revenues and growth?

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