Can Someone Explain Why Facebook's CFO Should Be Fired For Getting An Awesome Deal?
from the this-makes-no-sense dept
We've been a bit confused about the hubbub and complaints concerning Facebook's IPO. Yes, the stock has dropped tremendously since the IPO, which was bad for those who bought high (and for some employees whose options may now be under water), but from Facebook's perspective, the IPO was great. Think of it this way: if I have a painting, which I sell for $10 billion, and three months later, the next owner can only get $5 billion for it, it seems like I did a good job in negotiating the deal to get my $10 billion. I sold high, just like you're supposed to.So it's a bit of a head-scratcher to see NY Times financial reporter Andrew Ross Sorkin suggesting Facebook's CFO, David Ebersman, deserves to be fired for getting a positively amazing deal for Facebook. In Sorkin's world, Ebersman was supposed to get less for Facebook to benefit Wall Street. That seems wrong.
And yet if there is one single individual more responsible than any other for the staggering mispricing of Facebook’s I.P.O., it is Mr. Ebersman. He signed off on the ever-increasing offer price, which ended up at $38 after the company had originally planned a price range of $29 to $34.Sure. Perhaps someone on Wall Street should be fired, or Nasdaq for its technical problems, but Ebersman? He convinced Wall Street to fork over a ton of money to Facebook at an extremely high price. He should be seen as a financial wizard, not someone who should be fired. Mathew Ingram points out that it's silly to blame Ebersman when it takes a lot of people to make a market. But the best response may come from this Tumblr page that rewrites Sorkin's article in a more accurate way -- highlighting how Facebook got a hell of a deal for itself.
He — almost alone — pushed to flood the market with 25 percent more shares than originally planned in the final days before the offering. And since then, as the point person for investors, he has done little to articulate how or why the company’s strategy will lift the stock price any time soon.
At a time when investors are looking for some semblance of accountability on Wall Street and in corporate America, it is remarkable that nobody — no bankers, no one at Nasdaq, no one at Facebook — has been fired for botching the offering.
Now, yes, there's a longer term issue to think about as well: Facebook's relationship with investors is not a one-time thing (in theory), and you can question if the continued and rapid descent in share price makes it more difficult to go back to the public markets in the future. But this is Wall Street we're talking about, where money speaks above all, and it speaks loudest for those who get a lot of it. If there's an opportunity to make money from future Facebook offerings, they'll happen no problem. And, really, does anyone doubt that Wall Street take advantage of Facebook in the same way, if the shoe was on the other foot? I mean, look at the history of IPO "pops" that shot up 100% or more on opening day -- which is basically Wall Street doing the exact same thing that Ebersman did: mis-pricing the stock for their own financial benefit. But those are celebrated, not panned.
Basically, Sorkin's column seems like sour grapes from the Wall Streeters' perspective. Facebook made out very nicely in the IPO, got a ton of money at a much higher valuation than the market now thinks the company is worth. In other words it got a heckuva deal. A failure would have been pricing the stock at a point that people didn't want to buy it. But they did buy it, because Wall Street incorrectly thought that sucker retail investors would eat up the stock and drive up the price. They didn't. But that's not Facebook's fault.
Some have bemoaned that this shows how Facebook doesn't care about investors. But there's something to be said for that. Wall Street investors are notorious short-term thinkers, focused on this quarter or possibly (if they're looking "far out") the financial year. But that's not how you build long term strategic value. It seems Facebook was smart to take a ton of money when it was offered, and then to focus on trying to build a good product, and not really worry what Wall St. or its favorite journalists have to say.
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Filed Under: andrew ross sorkin, blame, david ebersman, ipo, wall street
Companies: facebook
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ur a wizard ebersman
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Simple
To continue your analogy above, selling the painting for $10 billion to somebody who can only get $5 billion on resale seems like a great idea until you realize that not only did you sell a painting, you took the job to act as the agent promising to resell it later for more.
He should take his (considerable) payday, and move on.
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Re: Simple
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Re: Re: Simple
Kudos to Zuck, he has played these guys like a cheap violin.
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surprised
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Re: surprised
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Re: surprised
If you - speaking generally here - got hosed in the Facebook IPO, your issue, insofar as you can have any legitimate issue, should be with NASDAQ or the banks that gave bad news in advance to their privileged clients. Sorry that your dream of the stock market being a rigged slot machine that instantly pays out more than you put in wash broken. Just don't try this shit next time you lose in Vegas.
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Re: surprised
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There are material facts / issues that seemed not to be covered properly, such as the fact that mobile was the only real growing part of the business, user wise, but it's also the area where Facebook makes the least money per visit, for various reasons.
The valuation to the market was 100 times earnings, which is way out of line. The stock price effectively NEVER went up, except for brief moments where the underwriters appear to have bought to try to drive the market. After that, it's been pretty much a constant slide, with more to come as shares come out of lockup.
Just like Groupon, it appears that Facebook wasn't entirely straight with what was on the table.
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my reasons are simple, the stock market in its current form should never existed, where rapid trading is more profitable then life long investing. while it has been "fooled" so many times it literally parting a fool from its money, while the last statement is saved for rather unpleasant people to justify their actions, in this case its "fool me once, shame on you, fool me twice shame on me" this negative impact on the markets should be punished and that is exactly what is going on
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Re:
You don't understand the market. For every rapid trading winner, there is a rapid trading loser, so the net profit at any instant is always zero. Life long investing is always more profitable, for the average investor.
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Hilarious.
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Re: Hilarious.
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Re: making license plates
The Obama Administration, using its very flexible notion of seeing that the laws of the United States be faithfully executed, doesn't seem to feel like prosecuting financial wrong-doing. There is strong evidence of this in comparative rates of prosecutions for financial crimes between the Obama, Bush and Clinton administrations, even assuming the underlying rate of exposed financial wrong-doing is constant. When the amount of apparent wrong-doing involved in the 2008 financial crisis is considered, the prosecution rate should have skyrocketed after Obama came in, but instead it collapsed.
It is also possible that the regulatory regimes in place make legal certain behaviors on the part of those selling financial instruments which morally constitute fraud and need to be changed in the interests of investors and the proper functioning of the markets.
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Re:
Was it good value? In the light of its current value clearly not. But value and price are not the same.
But I do agree with your POS comment. Unless FB finds a way to expand it's income without alienating its users, the price will continue to tank.
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Re: Re:
If by "people" you mean Corporations, Central Banks and High Frequency Trading Algos then I might agree with you
By the way, looks like Peter Thiel sold $139 million worth on August 17th 2012... can you say liquidation event: http://finance.yahoo.com/q/it?s=FB
Looks like a "person" does not see it going back towards $40 any time soon ; )
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how does this impact the employees
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Re: how does this impact the employees
Besides that, employees simply expect the stock not to tank. Else it breeds a bad mood within the company at the least. For this reason I think this guy (and Zuckerberg as well) were not trying to fleece anyone. They simply bought into the hype from wall street themselves. Now they have some extra things to deal with as far as keeping employees happy and engaged.
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Yes, of course, it's an Andre Sorkin column. In Sorkin's world, if the Street rips you off, that's good, but if you get one over on the Street, that's bad.
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Isn't that advertising?
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This story about facebook appears on the same day as one about Nigeria scammers, and yet there is no connection made as to the misleading nature of both offers.
Facebook didn't sell anyone a bridge, but some would say they got sold a bill of goods.
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Repeat of Steve Case/AOL
In both cases, there was a liquidity event just as the valuations were peaking. The folks on the inside did great jobs for their investors. Of course, the folks buying in look like idiots in retrospect so they have incentive to say they were lied to and try to pin some blame.
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Oh the irony...
I think the world's blackest pot has just met the world's blackest kettle.
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Because Sorkin works for the banksters and he thinks everyone else should too.
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