I think it's safe to say that Groupon CEO Andrew Mason won't be getting a Christmas card from Mark Zuckerberg this year.
With Facebook set to cross the 500-investor threshold (realistically something they probably did earlier this year through share consortia listed as single owners) and therefore be forced to disclose numbers, they're expected to go public in early 2012 at a valuation close to $100 billion. That is, unless the market sobers up in the wake of the disastrous Groupon IPO and calls bullshit on the Wall Street underwriters.
You can imagine my surprise a month ago when I got a call from my 77-year old mother who doesn't even own a computer saying, "Eddie, what the fuck is Morgan Stanley thinking valuing this piece of shit Groupon at $20 billion? And have you been eating your vegetables?"
Seriously, it was that bad. It seemed like everyone with half a brain knew that Groupon was a sham, from the accounting chicanery to its myriad competitors to its founders cashing out before the IPO. Midas and I even lambasted the company pre-IPO in NSFW Episode 26.
So why would Morgan Stanley (and, to be fair, over a dozen syndicate partners) foist an obviously over-valued deal on an already beleaguered IPO market? Well, first of all because they can. But more to the point, the fees they earned for screwing the investing public were sick.
Morgan Stanley alone pocketed over $17 million in fees on the deal. Goldman Sachs banked another $9 million in fees. Credit Suisse and Allen & Co each made $3 million. The laundry list of bottom-tier syndicate partners grabbed another $10 million in combined fees. In other words, mis-pricing IPO's is good business if you're an investment bank.
If you're an investor, not so much. Groupon was worth $17.4 Billion on Day One. It closed yesterday at $9.7 Billion, less than a month later. The company has shed almost half its value when exposed to the harsh light of day. But the banks just shrug their shoulders and tee up the next overvalued POS.
I'm betting Facebook won't be such an easy sell at $100 Billion, though. Let's face it: Facebook started going the way of MySpace the day your mom opened an account. The all-powerful sneezers have long since moved on to greener, less privacy-invasive pastures.
Here's hoping investors wise up to the hype and realize why the banks are placing such bullshit valuations on these companies. The unfortunate side effect of these underwriting shenanigans is that real, actual companies deserving of successful IPOs will suffer.
And we wonder why there's hippies in the streets.
Not sure how Facebook can maintain such elaborate revenues based on ads you can hardly see. Eventually, they'll have to ramp up their personal info exchange to the point where you are constantly advertised Valtrex due to the volume of sluts that post on your Wall.
Reminisces of a stock operator. Nothing has changed.
so... buy?
Maybe the logic was that the investing public are clamoring for something interesting to liven up the IPO market, so they won't mind if it looks overvalued? It would hardly be the first.
Linkedin i think was worth the valuation.....and dont be hating on MS Ed!
Ironic you talk about the hippies and hipsters in the streets, considering they are the ones who clammor for these BS "tech" companies stocks to begin with.
^ they don't know preferred stock from live stock
I don't agree with you here Eddie. GroupOn is a sham, with false accounting and a lackluster business model.
Facebook is ubiquitous. That little "like" button is everywhere. 800 million people have a profile. They have plans to launch a mobile device in the next year.
I think everyone needs to think about Facebook's long-term value proposition. In the next ten years, everything and everyone will be connected to the internet.
http://www.internetworldstats.com/stats.htm
Only 2 billion people worldwide are online, with over 800 million of them on Facebook. Because facebook is not available in China, I would say that a significant recent they don't have an even strong penetration of total online users is because of the Great Firewall.
Add to that the fact that everything will soon be connected to the internet. I'm not talking about just your televisions. Every applicance in your home, every lightbulb, your tools, your vehicle, your sneakers, everything will be connected and constantly streaming data.
Take a look at this product from Microsoft.
http://www.microsoft.com/surface/en/us/whatissurface.aspx
The example here is of people at a hardware store. If that device connects to some profile of the customers it that video, it can find out, via the data from that profile, that persons likes, dislikes, prior purchases, etc. In other words, every single experience, whether we are shopping or eating at a restaurant, can become tailored to the individual.
In order to do this, a universal profile needs to exist. If you look at the big players in SV right now, all of them have some sort of profile on you. Google has G+/Gmail, Apple has AppleID, Amazon has separate user accounts, Microsoft has MS Life, and facebook has the facebook profile. All of these are competing in an extremely lucrative market, which is the market for your personal identity in a connected world.
Facebook has the greatest competitive advantage, because their entire company is centered around building a great ecosystem for your online identity.
Most investors aren't imaginative enough to figure out the ways facebook can make money. As more and more devices come online, facebook becomes the platform to connect people with their devices, in addition to their friends. This is a massive revenue opportunity that is frequently ignored. We had this discussion last year after the GS investment, and today, facebook is worth twice as much.
Libor,
I'm not sure Facebook is worth twice as much today as it was when Goldman bought in, but if it is it's because of the greater fool theory.
Before you get too excited about the phone they're already backing away from, I'd read this:
http://edition.cnn.com/2011/11/29/tech/mobile/cashmore-facebook-phone/?…
Also, 800 million profiles out of an available 2 billion users sounds an awful lot like market saturation to me. I agree that going forward Facebook will be even more ubiquitous, but in the same way electricity is ubiquitous. In other words, Facebook has a shot at becoming a utility and that's if they don't fuck anything else up (and even Facebook fans have to admit that's a big "if" based on past performance). We typically pay an 8-12x premium on forward earnings for a utility.
800 Million out of 2 Billion internet users today. We've got 7 billion potential internet users on the planet, so even if they only maintain a 20% market share on a go forward basis, they still will be adding hundreds of millions of users.
On top of that, facebook doesn't even care about this as a metric anymore. They are looking at user engagement. More and more users are sharing content on facebook, whether it be articles they read or music they listen to. Again, this isn't really anything now, but it shows the kind of penetration facebook can create in our lives as more and more devices are added to the cloud. Sure, their phone might suck, but the native facebook application will still be on hundreds of millions of mobile devices worldwide, regardless of operating system.
Facebook's endgame is that of a utlitity, but that could still be fifty years out, as more and more people and devices are brought online.
This is what a fullly connected future world could potentitally look like. A universal profile is necessary in order to connect yourself with the platform. Facebook is one contender for such a service. This will obviously become a commodity, but even at 10X earnings facebook only needs to earn 10 billion a year.
You might like this article as well.
http://www.forbes.com/sites/venkateshrao/2011/10/10/public-computing-an…
Libor,
I'm with you, and I'll be a buyer when they show $10 billion in earnings.
I'll be a buyer when they show $10 billion in profit.
Ummmm...somebody wanna field this one?
FB 100Bil? I call bullshit. Whichever sucker will be pulled in that is fucked. Facebook cant justify earnings to drag this figure. I'll put my money any day on Google. They will become the biggest company on the planet very very soon. As for FB I hope it burns down like MySpace.
Been calling bullshit on Facebook since Tom from Myspace stopped spamming me.
Can't stop, won't stop.
haha Midas ur soo OG with your subliminal rap references
why hate on the banks for overpricing it? hate on the idiots that bought it at 20 bn lol
I think groupon and facebook are both crap for different reasons.
Groupon is garbage because the business model doesnt work. I realized this when i was a member of a gym in NYC that did a groupon deal. The place was immediately flooded with cheap ass coupon clippers. they totally alienated the actual full-paying members including me. i canceled my membership and stopped opening groupon emails. Businesses that use groupon dp themselves no good.
Facebook is crap because I believe social networking is becoming like the bar business. One spot becomes cool, lasts a year or two, and then everyone is already on to another spot. We have already been thru friendster, myspace, facebook and im sure a couple of others i wasnt involved in. Im sure trend-setting younger people are already onto a new social networking site that i wont know about for a year or two. Once your mom joins the site its not cool and you move on. In 10 years facebook will be like friendster.
Facebook had the potential to be a gated community for college students, but as soon as Jevon Gettinthatbootyandplayindiceinthealley White and my girlfriend's mother both got access and requested electronic friendship, I was done.
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