"Facebook founder Mark Zuckerberg’s decision to pay a premium for Instagram presumably reflects a high level of optimism about the future of social media and about new possibilities unleashed by the current explosion in mobile technology. Then again, it may also reflect an age-old pattern: People with capital to spare identify a seemingly underappreciated new investment opportunity, and the money keeps rushing in well beyond what market fundamentals seem to justify. That’s what happened with dot-com firms in the ‘90s and subprime mortgages in the early ‘00s.
To compare it to the banker-driven mortgage-backed securities scandal that destroyed the world economy and allowed the fraudulent seizure of homes literally hit people where they lived and robbed them of their only source of equity is deceptive.
Granted, some financial deals that initially seem questionable later look prescient; Google’s purchase of YouTube, which once seemed like merely a hotbed of pirated content, falls into that category. And Zuckerberg’s record of foresight is good: He started a profitable business that’s become an essential form of communication for hundreds of millions of people around the world. But not every venture capitalist with a checkbook has Zuckerberg’s vision, and the costs of what former Fed chairman Alan Greenspan once called “irrational exuberance’’ can be devastating for the entire economy.
But somehow those crooks and thieves are still walking around and stuffing money in their pockets.
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"Instagram cofounder’s success story has Holliston roots" by D.C. Denison | Globe Staff, April 11, 2012
On Monday, the cofounder and chief executive of Instagram, the mobile photo sharing service, revealed that his San Francisco start-up will be acquired by Facebook Inc. for $1 billion in cash and stock. He founded the company less than two years ago.
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Related: Instagram deal highlights need to bolster tech startups in Mass.
Instagram is not the only photo app in town
In IPO, Facebook sells 421 million shares priced at $38
Facebook shares hit the market
Facebook cofounder's next big idea
Facebook updates data use policy to give more info
Facebook highlights organ donor status
Lack of trust in Facebook may hold back ad sales
Not a good sign.
"Facebook is being abandoned by its core market. You'd be better off investing in Greek government bonds
by Daniel Knowles
May 18th, 2012
....
In its initial public offering (IPO), which is happening today, the firm is expected to be valued at $104 billion. One Hundred And Four Billion Dollars.
That's nuts, but let's just explain why. Ordinarily, an investor would hope to earn at least 5 per cent on an investment – ideally more, since historically, you can earn that just buying Government bonds. So for a company to be worth $104 billion, you would hope for at least $5 billion a year of profit. Really, to justify the risk of owning shares, you'd want more – $10 billion perhaps. Every year. Forever.
But Facebook's revenue is currently just $3.7 billion, and its profit is around $500 million. So the website is making less than one tenth of the profit you would hope it to earn in the long run. By contrast, Google earns 10 times as much revenue – $37 billion – and 20 times as much profit, and yet is only valued at around $200 billion.
OK, so investment decisions are a little more complicated than that. But if investors value the company at $104 billion, then they must think that Facebook will eventually be able to increase its profits by a factor of, at the barest of bare minimums, ten. That would mean tripling revenue, at least, probably more, since it seems unlikely that even Facebook can increase revenue without increasing costs.
And I think that's impossible. Here's why: I'm 24, on a decent salary, relatively well-educated and a Facebook user. I should be generating lots of profit for the firm. But on my calculations, the revenue earned from me over the last month is approximately nothing. I barely use Facebook these days, and when I do, I usually log in through my phone's Facebook app, which has no adverts. Sometimes, I use the shiny iPad app, which again, has no adverts.
My friends barely use Facebook either. When I was a student, I used to log in approximately every ten minutes. If you said "Facebook break", everyone knew what you meant. When I logged in, I could guarantee a stream of amusing "banter" and gossip, as links and pictures were shared. Now, I log in, and it's a wasteland. Almost all the links I click on and the online running conversation I have has migrated to Twitter, which I check religiously. So too have all the most prolific Facebook users I used to know. While we probably still count as "regular users", for more and more of my generation, Facebook is little more than an electronic address book. That's why big advertisers, like GM, are reducing their spend on the company.
And who is in control of this revenue-less, glorified address book? A Harvard geek, barely older than me (Mr Zuckerberg is just 28), whose last big decision was to blow $1 billion on a photo sharing website I've still not signed up to....
--MORE--"
"Facebook’s hot start turns tepid; Facebook stock’s first day merely holds its ground amid high expectations" by Hiawatha Bray | Globe Staff, May 19, 2012
The stock might have fallen even lower, but Facebook underwriters were buying up shares to prop up the price, and prevent a weak showing from damaging the market for future initial public offerings, according to Peter Falvey, managing director at Boston investment firm Falvey Partners LLC. Lead backers for the Facebook offering included Morgan Stanley, JPMorgan Chase & Co., and Goldman Sachs Group Inc....
Oh, great, MORE BAD BETS by the BIG BANKS!!!!
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Also see: Facebook Class Action Lawsuit Seeks $15 Billion for Privacy Violations
Facebook Is a Sucker’s Stock
"Behind the "media darling" approach to selling this stock lies a stark truth; Facebook's revenue stream cannot support dividends on $80 billion in stock sales. Given that Facebook is already the dominant social platform, they have saturated their market and have little room to grow, which means no way to increase revenues to cover the dividends for the IPO. Facebook was not about long-term investment but a classic Wall Street "bump and dump" for a fast buck followed by a quick exit....
There is no way that major Wall Street players ever saw the Facebook IPO as a long term investment. We are in all probability looking at a get-rich-quick "pump and dump", but there may well have been an additional agenda at work.
We know the main players manipulkate the markets. The almost $12 billion poured into the Faceook IPO late Friday to prevent the price from going into the red represents one form of obvious manipulation. And there are many others, including the use of high-speed computer trading systems.
However, because of the many years that the PPT has manipulated the stock market with their high-speed computer trading systems, savvy small investors have left trading, which means the actual flow of cash into the market has dried up. The PPT games shuffle what money exists around and around in circles trying to run up some impressive looking numbers, but the volume and the value is simply no longer there.
So, part of the reason for the major push for Facebook may have been to lure young investors into the market with the Facebook "brand", rubes too dumb and inexperienced to know they were lambs to the financial slaughter, to form the new lowest level of the Wall Street pyramid scheme.
The value of such a re-invigoration easily explains why the major Wall Street firms turned a blind eye to Facebook's inability to pay dividends on the IPO, and why Morgan Stanley, JPMorgan Chase and Goldman Sachs gambled nearly $12 billion late Friday to prop the price up.
If I am correct, and the Facebook IPO was intended to bait new investors into the stock market as a whole, then any major drop in Facebook value Monday will trigger a general market panic." -- Wake the Flock Up
Update: Stocks Slump for 6th Day on Europe Concern as Facebook Debuts
