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Can Someone Explain Why Facebook's CFO Should Be Fired For Getting An Awesome Deal?

from the this-makes-no-sense dept

Tue, Sep 4th 2012 7:59pm — Mike Masnick

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.

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.

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.

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

35 Comments

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monkyyy, 4 Sep 2012 @ 8:16pm

http://www.youtube.com/watch?v=24Wv1FDJLM4
ur a wizard ebersman
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AC (profile), 4 Sep 2012 @ 8:18pm

Simple
The calls for him to get fired are coming from the people who bought overvalued Facebook stock. Those people are now, essentially, Ebersman's bosses.
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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Jeremy Collake, 4 Sep 2012 @ 8:18pm

surprised
I am surprised to see you take this position. You are right, it does take a lot of people to make a market. The problem is that he actively participated in a 'hype and dump' scheme. Your argument is the public's fault for being so gullible, and/or that there are others who profited, so why focus on him. I'd say he is the perfect scapegoat, if there is one. The one thing he has done for sure, is helped - along with others - to further erode public confidence in the markets. The little man continues to feel like he always gets the short end of the stick. Me? I have no money to invest, but I actually did predict that Facebook would be at $20 in 6 months on its IPO (its in stone on a social network ;p). I knew better. And the people hyping it should have too. They have yet to figure out how to monetize their mobile apps, and their mobile apps are increasingly becoming the primary method of use. Further, they have new competition from GooglePlus. They will not be able to continue revenue from Apps themselves, as those are available on external platforms (like Android and iOS). Facebook's only real value may be, later, in some acquisition, and at that time some corporation will have a vast amount of information about us, for whatever use.
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Anonymous Coward, 4 Sep 2012 @ 8:30pm

Facebook got a hell of a deal for itself, but it appears that they pretty much had to misrepresent themselves to get it. The number of fake or duplicate profiles was one of many issues in play.

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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monkyyy, 4 Sep 2012 @ 8:34pm

Re: surprised
people acting greedy, while digging their own grave and handing u money, is called a con; but that really only applys if u lie/mislead/cheat them; and not them doing it to themselves bankers are delusional thinking they can profit off rapid inflation on a sorta-stable commodity, that is all that the stock market is currently and it has no place in reality
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Argonel (profile), 4 Sep 2012 @ 8:42pm

What everyone seems to be forgetting is that Ebersman works for the majority stockholder. Until Mark Zuckerberg loses control of the company or decides he doesn't need his skills anymore he isn't going anywhere. Last I heard Zuckerberg has enough voting stock to override everyone else combined.
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monkyyy, 4 Sep 2012 @ 8:48pm

i hate facebook but im on their side for this one, strange i usually am alone on my hate of facebook; rather then everyone(so far) has been doing.

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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JustSomeGuy, 4 Sep 2012 @ 8:49pm

Hilarious.
People buy into an overhyped stock with a price earnings ratio of about a bazillion, and then they complain that the price drops. Here's some thought for those people. Do some goddamned research next time. This pig was never going to fly and those that bought in for a quick buck are getting everything they deserve. Hell, I wouldn't even buy this stock at current levels. There's get-rich-slow and get-poor-quick. Other than statistical anomalies, there's *never* get-rich-quick, despite what the brokers tell you (well, except for the brokers of course).
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Aerilus, 4 Sep 2012 @ 9:01pm

I remember hearing around the time of the IPO from multiple sources not to buy because a hot tech IPO will in all probability sell for to much and drop. I don't see what everyone is complaining about. If someone like me who pays little attention to these thing knew that it was likely that this would happen then i don't see how any one can be calling for blood. its the stock market its like legalized gambling
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BentFranklin (profile), 4 Sep 2012 @ 9:09pm

Every market made for optimal allocation of resources attracts speculators. In many cases speculation keeps the market liquid. Nothing wrong with that. But fraud and misrepresentation are always wrong, even if the victims are speculators. If this fellow withheld key disclosure items his next job should be making license plates and then let the stockholders have at him. But since that isn't happening, it's sort of stupid to be still complaining.
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Mgremmele, 4 Sep 2012 @ 9:11pm

Re: Simple
Problem with your analogy is shareholders don't control any portion of the company as Zuck still controls the absolute majority of the voting shares. Shareholders essentially bought the right to take a ride, and the CFO served the controlling party.
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Anonymous Coward, 4 Sep 2012 @ 9:30pm

Still trying to justify that first day "Facebook was priced just right" article you wrote eh Mike? Just wait until it trims another 50%. This POS isn't even close to bottoming out yet. Watch and learn.
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Anonymous Coward, 4 Sep 2012 @ 9:36pm

Its because wall street is doing terrible evaluations. If you want to blame pin in on wall street who does the valuations of stocks.
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Souvik Kar, 4 Sep 2012 @ 9:57pm

how does this impact the employees
I wonder how this impacts the employees who had the stock options/RSUs. I don't think they will be very happy if the stock keeps on tanking. Zuckerberg can ignore investors, but it is harder to ignore the employees. Also the taxes may be another issue. From what I remember when the RSUs are vested they will be treated as normal income and taxed immediately. Normally to pay that tax employees would look to sell some of that stock. The best scenario would probably be that the stock price starts improving once those RSUs are vested. If the stock price again drops significantly after the vesting then they will have to sell most of the stocks just to pay the taxes.
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Zem, 4 Sep 2012 @ 10:27pm

Re:
of course it was priced right, shares are always worth what people are willing to pay for them, and they did.

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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Anonymous Coward, 4 Sep 2012 @ 11:47pm

Re: surprised
The NASDAQ is a company. The day it is illegal to "erode faith" in a company is a day where we're all owned by corporations.

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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Anonymous Coward, 5 Sep 2012 @ 12:11am

Re: Re:
"shares are always worth what people are willing to pay for them"

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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Anonymous Coward, 5 Sep 2012 @ 12:36am

Re: Re: Simple
Correct. The CFO wold be very silly not to serve the controlling party, that really would get him fired. All this whining is coming from traders who have dropped a ton of money on the deal. Now they are as mad as hell. The rubes are the ones who are supposed to drop a ton of money, not the masters of the universe. Suck it up, masters. You are not as smart as you thought.

Kudos to Zuck, he has played these guys like a cheap violin.
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Anonymous Coward, 5 Sep 2012 @ 12:54am

Re: Re: Re:
I told you that Facebook was the devil, Bobbey Boucher! The devil!
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Simple Mind (profile), 5 Sep 2012 @ 1:40am

Re: how does this impact the employees
Bingo. I don't know how RSUs work, but stock options are taxed at the price they were exercised at. It is easy to get overtaxed if you exercise and then do not immediately sell... as you would if you expect the price to increase. You can exercise any time after the options vest, too, but there are strict rules about when you can sell. This is how people get into tax trouble with options.

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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MacCruiskeen, 5 Sep 2012 @ 4:57am

"Basically, Sorkin's column seems like sour grapes from the Wall Streeters' perspective."

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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Anonymous Coward, 5 Sep 2012 @ 5:07am

So the company hyped up their product and now people are complaining that it wasn't as good as it was hyped up to be?

Isn't that advertising?
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Anonymous Coward, 5 Sep 2012 @ 5:26am

Facebook's CFO ripped us off big time! Only WE should be able to rip other people off by doing stuff like giving mortgages to people we know will never be able to pay them back, and then selling the mortgage off to other suckers.
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Anonymous Coward, 5 Sep 2012 @ 6:15am

Re:
Facebook was priced just right... for me to make my first-ever short sale. I made 25% in a week!
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Anonymous Coward, 5 Sep 2012 @ 6:21am

Re: surprised
The people getting in on an IPO are not 'the little man...'
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Anonymous Coward, 5 Sep 2012 @ 6:28am

Re:
The logic in that article is the same as this one: It's the best price for Facebook and that remains just as true today as it was then.
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Anonymous Coward, 5 Sep 2012 @ 7:23am

This is why I love Techdirt - the disconnect.

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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DNY (profile), 5 Sep 2012 @ 8:52am

Re: making license plates
I'm not so sure the fact that Ebersman not being on his way to a job making license plates (i.e. not being prosecuted for fraud) is any evidence of lack of wrong-doing in the representations made in the Facebook IPO. After all, no one has been prosecuted for representing collateralized debt obligations (CDOs) full of sub-prime mortgages as AAA-rated investment instruments.

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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Anonymous Coward, 5 Sep 2012 @ 9:01am

Repeat of Steve Case/AOL
The same attacks happened to Steve Case after AOL was able to dump a bunch of stock to merge with Time Warner. AOL was past its prime and everybody but some ancient Time Warner execs knew it. Mr. Case did right by his share holders, which was what his job was.

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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ChrisB (profile), 5 Sep 2012 @ 9:04am

Re:
> rapid trading is more profitable then life long investing

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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PT (profile), 5 Sep 2012 @ 9:11am

Re: Hilarious.
A few minutes' research would have reminded them that "cyberspace" means the gap between a tech company's stock price and its earnings.
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DCX2, 5 Sep 2012 @ 9:21am

Oh the irony...
Here's a guy on Wall Street whining that nobody is being fired or held accountable for fraud.

I think the world's blackest pot has just met the world's blackest kettle.
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davnel, 5 Sep 2012 @ 2:19pm

The investment banking industry has a long and illustrious (NOT!) history of fleecing everyone and everything it touches. That Mr. Zuckerberg and Mr.Ebersman were able to game them and win was brilliant. If Mr. Ebersman is forced out (highly unlikely) he will be snached up instantly by someone who can appreciate his financial wizardry. Kudos to both of them.
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chris murphy, 5 Sep 2012 @ 9:31pm

"Can Someone Explain Why Facebook's CFO Should Be Fired For Getting An Awesome Deal?"

Because Sorkin works for the banksters and he thinks everyone else should too.
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monkyyy, 6 Sep 2012 @ 12:29pm

Re: Re:
adjust for inflation, also for every long term winner there is a long term loser
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