Facebook

From Reuters today:

Facebook Inc and lead underwriter Morgan Stanley were sued by shareholders who claimed they hid the social networking company’s weakened growth forecasts ahead of its $16 billion initial public offering.
The lawsuit came as Facebook and the banks that took it public face questions about the IPO, which culminated in a May 18 stock market debut plagued by technical glitches.

Facebook shares fell 18.4 percent from their $38 IPO price in their first three trading days. They were up $1.08, or 3.5 percent, at $32.08 in Wednesday afternoon trading.

The lawsuit claimed that the defendants, including Facebook Chief Executive Mark Zuckerberg, Goldman Sachs Group Inc and JPMorgan Chase & Co, concealed “a severe and pronounced reduction” in revenue growth forecasts resulting from greater use of Facebook’s app or website through mobile devices.

Anyone working in technology with an understanding of secondary markets understands why Facebook’s share price has been faltering since it opened last Friday. The rest of the public? Not so much; a big reason we’re seeing this shareholder suit above. Regardless of whether or not Facebook made some adjustments to their revenue forecasts during the road show, the bottom line is Facebook at its opening price was highly overvalued. Partly because of hype leading up to the offering, but by and far because of the fact that the FB has been a public company since January. For any of your friends complaining about their Facebook stock, be sure to remind them about this article from January:

Facebook has raised $500 million from Goldman Sachs and a Russian investor in a transaction that values the company at $50 billion, according to people involved in the transaction. As part of its deal with Facebook, Goldman is expected to raise as much as $1.5 billion from investors for Facebook.

Goldman Saachs brought this company public long ago to their private wealth clients at a much more reasonable valuation. Today’s price is just the results of continuous trading of privately held Facebook stock up until March.28, 2012 when Facebook banned the selling of their shares on exchanges until its IPO. What perfect timing. From January until March, Facebook’s first IPO shareholders rode it up for a nice profit. The not so lucky people are the ones who were the last to buy (at a valuation of $100B) and have to hold onto their shares until the lockup ends. Or the suckers, who bought at the first available price they could once the stock made its real IPO (or its second I should say). What is the true value of Facebook? I imagine it will settle in at a reasonable % gain above its $50B market cap when Goldman internally brought FB public to its clients. This should come to no surprised to technology investors. This is just one of the first trades that so many retail buyers were in the mix, thinking FB is the next Google. Sorry to break the news people, you just got scammed.

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