That squeal from the general direction of Wall Street this morning? It was likely the Facebook underwriters being taken roughly from behind. Facebook closed at $34.03, slightly further than the 10% drop I proposed on Friday.
Why the lack of faith in Facebook's business model? Tekpersona's J. C. Kendall analyses the business profile of the social model and fails to be impressed:
Resolved: The Facebook IPO was necessary for shareholders to cash out before you find out exactly what I am about to tell you.It's entirely believable that the shareholders were happy for the underwriters to get it in the shorts as long as they could exit their shareholdings at north of $38. What's surprising is that the underwriters were sufficiently poorly informed that the shareholders could get away with this. Had the underwriters been reading Mr. Kendall's article, their attitude towards a $38 launch price might have been different:
It is 100 times more likely, that I will come across an ad on Google or Bing and clicked through to conversion long before I ever end up on Facebook, to find a Brand page, find a product, and look for a conversion link or ad that makes Facebook money. Sure it happens, because Facebook does make money from Ads. The problem is, that almost no vendors (except those selling information about how to make money on Facebook) will ever turn a measurable profit.While the singular of 'anecdote' is even further from 'data' than its plural, I have never clicked on a Facebook advert or 'followed' a business's Facebook page. I have, by contrast, followed businesses on G+ and clicked on ads in Google search results (and been happy with the resulting purchase). I think Kendall nails it.
Where now for Facebook (and Zynga?) There's another 6 months until many employees can sell their shares, and 8 days or so until short selling FB shares is permitted. Facebook will still make many millionaires, but one has to wonder about California's forecast of $2bn in Facebook IPO-related tax revenue.