The Only Way Is Down

Posted by Viktoria Michaelis on August 18, 2012 in Internet, News & Opinion |

It’s not going to take long, and the calls for Mark Zuckerberg to move on and find a new job will grow louder. The first mentions of such an idea are already there, even if most people have overlooked them, and they will probably get louder next week.

And that despite the fact that it isn’t completely Zuckerberg’s fault that Facebook’s value on the stock market is falling and, I am sure and I have said it many times before, will fall further.

Firstly it was clear that Facebook was never going to hold a share price of $38. It was all a fantasy which many Wall Street and other investors allowed to taint their (occasionally) good sense. It was also clear that the possible income for Facebook, based on games and advertising, would never meet up with the forecasts and, as a result, the investors would be disappointed.

But there was something else which should have been clear from the start too, alongside the fact that the share price would fall within days if not hours of the IPO. It’s the sinking ship principle, which works even when the ship isn’t even really in danger, and it involves the earliest investors such as Peter Thiel and several larger investment companies.

Peter Thiel is a name you’ve probably come across as founder of Paypal, which he successfully passed on – willingly or otherwise – to eBay. He is an early Facebook investor who laid $500,000 on the table and secured himself a board position as a result. When Peter Thiel decides he wishes to cash in, whether all of his shares or just a few, the price he gains makes no difference at all. With the present share price he stands to gain – should he sell all the shares and the price remain stable during the transaction – one hundred times his investment. No matter when he sells, he’s going to make a vast profit.

And when that happens, and it will, the calls for Zuckerberg to move on will become louder. The investors will show themselves unhappy that the share price has fallen so far and that they stand to make a loss on their investments. Of course it will be Zuckerberg who has to take the plunge, even though it is not his directly fault. The fault lies squarely with those who invested for such a high price, experts who should have known better, and with those who are now selling out. The share price is controlled by transactions on the stock exchange, in this case, and not by Zuckerberg’s presence at Facebook.

From my point of view I believe that the Facebook share price will level off, but nowhere near the IPO offer price. The company is worth, perhaps, $12 – $15 per share, no more, and that is where the investors should be looking now.

  • Viktoria Michaelis.

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  • Francois says:

    Thiel sold most of his remaining 28 million shares on August 16 and 17 for close to $ 400 millions. Added to the $ 600 millions he raised on the day of the IPO, he netted one billion out of his half million initial investment, a multiple of 200. He is left with a meager 5 million shares that are locked to insider trading until November.

    The cause lies with the underwriters and Zuckenberg. Zuckenberg for bullying the underwriters into a $38 initial price and the underwriters for not telling him to take a double dose of reality.

    The effect is someone, somewhere, lost 50 billion dollars.

    It is unlikely Zuckenberg can be forced to step down as each of his shares carry ten votes and the charter of FB gives him, and him alone, the right to designate his successor. As long as he holds 51% of voting shares in FB, he controls it completely.

  • viki says:

    Sometimes news filters through slowly, especially when it comes to the selling of shares!

    I don’t imagine Zuckerberg will be forced to step down, whether anyone is capable of doing it or not, but there have been calls for him to step aside and take on a new role in the company, bringing in someone new – or promoting someone – to change the fortunes of the company.

    Regardless of what happens, the company is clearly not worth as much as the initial assessment and major mistakes were made by many people along the way. It remains to be seen what happens next. Perhaps a few of the investors will go the same way as those who invested in the German telecommunications company several years ago, and challenge the initial IPO price and the information they were given through the courts. Such an action would be very expensive, highly likely to succeed, but take quite a few years.

  • Francois says:

    Regardless of what happens, the company is clearly not worth as much as the initial assessment and major mistakes were made by many people along the way.

    Truer words were never written.

    The majorness of the mistakes, and the number of peoples making them… Astonishing.

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