Facebook Handled Its IPO Exactly Right

Andrews Ross Sorkin wrote a >piece for the New York Times that was just ridiculous. He put the blame squarely on the back of the CFO of Facebook. Talk about getting it 180 degrees wrong.

It's easy to dump on the Facebook IPO as its stock price continues to fall and fall and fall. "Facebook messed up!" cries everyone. But did it really? Mark Cuban says no.

Have you ever been to an auction where the selling party told a buyer to reduce their price because they were worried that the item might not hold its value? Neither have I. If the CFO of Facebook came on SharkTank and told me that he was able to sell his shares to the public for $US38 a share, but turned down the opportunity, I would crush him for being an idiot.

Facebook was able to raise about 10 BILLION DOLLARS in this IPO. The CFO's job is not to manage shareholder portfolios. His job is to help Facebook succeed. I don't know about you, but putting 10 BILLION DOLLARS in the bank in my opinion is one way to help it succeed.

Whose job is it to help manage the portfolio's of FB investors? If an investor doesn't manage their own portfolio, the brokers who sold them the stock are responsible. It's their job to read the prospectus if you as an investor are too lazy to do so. It is the job of the broker to help the investor understand the value of the company and make a buying decision. No question that there are a lot of brokers out there that did not do their jobs.

As far as traders who bought the stock hoping for a pop: No one cares about them. Seriously. You trade, you know you are going to lose on trades. That is how things work.

I bought and sold FB shares as a TRADE, not an investment. I lost money. When the stock didn't bounce as I thought/hoped it would, I realised I was wrong and got out. It wasn't the fault of the FB CFO that I lost money. It was my fault. I know that no one sells me shares of stock because they expect the price of the stock to go up. So someone saw me coming and they sold me the stock. That is the way the stock market works. When you sit at the trading terminal you look for the sucker. When you don't see one, it's you.In this case it was me.

If the goal of the company is to maximise the cash obtained from the IPO, then the CFO should absolutely price the stock to maximise the return. If the goal of the company is to get a 1 day pop to make a PR splash, that is a completely different strategy. It obviously was not the strategy of Facebook. Facebook maximized the cash available to it. They have been very clear that they will not manage the stock, they will manage the company to reach the goals they have been very open and honest about. Good for them.

Andrew did try to make one cogent argument that Facebook faced the risk of employees leaving because their options were underwater. Apparently Andrew forgot that companies can re-price their options. Problem solved.

I will leave you with this article from a few years back when Google was at a similar point, having lost more than TWICE the market cap valuation that Facebook has lost to this point.

Mark Cuban is the owner of the Dallas Mavericks and one of the most successful technology investors around. He regularly blogs about the tech industry at Blog Maverick, and he has an ebook — How to Win at the Sport of Business — available at Amazon and iTunes. Oh, and he's on Shark Tank.



Comments

    The term Faceplant comes to mind, you know, where someone take s a massive leap and it all goes wrong and next thing you know it's a YouTube hit.

      Did you read the article. It is saying that, from Facebook's perspective, the float was a success.

      I happen to agree. Facebook got the highest possible cash influx possible. That was their goal.

      (I also happen to have thought in advance that the shares would tank, on the basis that it would too hard for them to monetise their user base, and so didn't buy any.)

    What bs comments on why FB shares that started at $26 and are now under $18 is good.

    And he misleads about Google's share price: it started at about $100 and the lowest its been in 7 years is $262, and currently its at $680. Google is a huge success while Facebook is not.

      I think you completely missed the point of the article, which was success means different things.
      Google's IPO may be a success for initial investors, but could be deemed unsuccessful for the CFO as he could have raised more funds.
      Alternatley, Facebook had a successful IPO in terms of money raised, but was unsuccessful for initial investors.
      There are always two sides to the coin in a monetary transaction, pun intended.

    Spot on. besides the risk of losing engineers facebook (as a company) doesnt care if the price went down. they managed to sell everyone a product for doubt the price it is now revealed to worth. If on the first day it has tripled in value they would have been kicking themselves for offering it to low.
    For anyone who thinks that its better for the company to get less money in an IPO is fooling themselves.

    @April. The article is completely correct you have just misinterpreted it.

    All correct, unless the magnitude of the fall damages the brand and the loss of confidence results in reduced investment and loss of revenue. That's hard to quantify though, while the IPO cash is a cold hard figure.

    so you're all suckers for buying into facebook and allowing something that should die to continue leeching off all of us. those who say you care about privacy... why have a fb to begin with? nothing privacy related is secure online...
    and what about this latest release from anonymous claiming apple is tracking iPhones sold? over 12 million names and your name might be on that list... you're all suckers believing everything you've been told... and fed a millionaire even more money to "keep a website alive". social media will move into the next one soon enough... it's just like the MySpace days.... until the next best thing came along.

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