According to the marketing cognoscenti and my own personal experience, most of the companies that advertise on Facebook are far below the three to four interactions a week needed to prompt a customer response. That is, unless you count the four-letter words every time I get an irrelevant “story” posted to my wall.
It’s no wonder to me that very “unsocial” networks are already wiping the shine from Facebook’s apple.
The assumption that Facebook can maintain the 100% growth it reported Q2 2011 is no more plausible than the 45% growth it reported most recently. Google couldn’t. Apple couldn’t. And both of them are real businesses.
So Now What for Facebook Stock?
I think Facebook’s valuation is the least of its worries. The blame game now under way is only the tip of the iceberg.
Morgan Stanley, Goldman Sachs (NYSE:GS), Facebook and Zuck himself are being sued over the IPO, according to a slew of papers filed in the U.S. District Court in Manhattan on Wednesday morning.
At issue are material reductions in the company’s revenue forecasts that were selectively disclosed to preferred investors as opposed to the investment community at large, as required by securities law.
Also at issue is the fact that a single Facebook executive might have communicated this information verbally to institutional investors but, again, not to every investor. That’s a big no-no.
Talk about irony, though.
Facebook represents itself as ushering in a new era of transparency, openness and connectivity. If these allegations are true, the company could not have been more two-faced.
I’ve been involved in Wall Street and its IPOs for more than two decades and I have never seen something like this. It’s unprecedented, especially when it comes to material revenue projection reductions during the company’s pre-IPO roadshow.
So far individual investors are just getting warmed up.
Phillip Goldberg, for example, filed a complaint in Manhattan federal court against Nasdaq OMX Group (NASDAQ:NDAQ) saying the exchange acted negligently in its widely publicized mishandling of the Facebook IPO.
Goldberg, who is based in Maryland, apparently wants to represent a class-action lawsuit on behalf of investors who lost money because their orders were not properly handled.
The bottom line?
I’d love to buy Facebook put options. But I can’t. There aren’t any, and estimates suggest there won’t be any made available until May 29 at the earliest.
I’d also love to short Facebook stock. But I can’t do that, either. My broker tells me the stock is on the restricted list, meaning the security cannot be borrowed nor delivered in such a way to consummate the transaction.
So, I’ll just sit back and watch the fireworks for a while.
Come to think of it, $7.50 a share is still rich for a company that doesn’t know what it wants to be when it grows up.