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Wed May 23, 2012, 10:18 PM

FaceBook UnFriends Its Fan Base -- CEO and Execs out on Spending Sprees while FB in crisis

What should have turned into an historic day for the post-recession IPO market has turned into a calamity. Facebook, Inc. is a business based on leaving its users “feeling good.” Feeling good about interacting with family, friends and colleagues, and feeling good about finding products, services and stories that may interest them and therefore enabling the company to bank some advertising money.
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Had Facebook stuck with its original IPO price, today would have been another day at the office, as shares are trading right in that range. No one would really be paying attention and the headlines and message boards would be bright with speculation and predictions for the future.

Instead, because these guys HAD to milk those few extra bucks out of the little guy, negativity surrounds the company like never before and the loyalty of the customer base is threatened for the first time ever, at least on this scale.


http://marketplayground.com/2012/05/23/facebook-nasdaqfb-unfriends-its-fan-base/

Great piece. He argues against the lawsuits and correctly analyzes the current state of affairs at Facebook. I would go a little further: Facebook is in crisis right now. It is like the bus driver collecting everyone's fare and then jumping out while the bus is rolling and leaving no one driving. The naked greed of this IPO and the way it actually went down has created a PR crisis and no one is answering the phones at FaceBook.

FaceBook revenues were down in the last period and then last week, right before the IPO, GM very publicly said it would not spend another $10 million on FaceBook ads because they didn't perform. The "feel good" stuff in the linked article is right on target. That is what Facebook has delivered successfully for years. Last year, as their parents became dominant on FB, the kids left. They use Twitter now -- less potential for your parents to stalk you online and embarrass you (or shoot your laptop). The kids were the more valuable demographic to ad-revenue-based business model.

For those who put doubts aside and trusted that Zuckerberg was a wonderkind, a visionary on the order of Steve Jobs or Larry Ellison, there should be no illusions now. The $1 billion purchase of instagram was a signal that Zuckerberg was out of ideas and his current absence at the helm is confirmation that he knows it. Fake it 'till you make...and then run off when the shit hits the fan. I don't care how old he isn't or what he wears to work (when he goes) but leadership like that is not worth even $5 billion in market cap.

This IPO reminds me in ways of Krispy Kreme. The donuts were very popular and there was a 'good feeling' about the company among small investors because they knew and liked the product. Krispy Kreme went down in scandals and finished as a penny stock.


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Reply FaceBook UnFriends Its Fan Base -- CEO and Execs out on Spending Sprees while FB in crisis (Original post)
KurtNYC May 2012 OP
KurtNYC May 2012 #1
dixiegrrrrl May 2012 #2
Evasporque May 2012 #3
KurtNYC May 2012 #4
Ikonoklast May 2012 #5
KurtNYC May 2012 #6
CBGLuthier May 2012 #7
KurtNYC May 2012 #9
JCMach1 May 2012 #8
KurtNYC May 2012 #10

Response to KurtNYC (Original post)

Thu May 24, 2012, 09:35 AM

1. Krispy Kreme was different -- started in 1937, IPO in 2000

It did the IPO on NASDAQ, like FB, but 13 months later in the middle of the dot com bust, Krispy Kreme moved over to the NYSE. The stock climbed to $50 per share in 2003 and the IPO was at $21 so that is a gain of 235% in a bearish market. After some accounting scandals and SEC investigation the stock fell out. But the execs blamed the low carb craze (Atkins) for the declines. Many say that KK spent the IPO money opening too many stores too quickly after being in business for 60 years.

FB starts in 2004, it is lauded in 2009. It continues to grow internationally but in the US it loses 7 million active users around April of 2011 and term "FaceBook fatigue" is coined. Some see this as geometric growth that burned itself out. In other words it hit a saturation point fairly rapidly and now needs to maintain it's user base and fight off competitors -- this requires different marketing than the period of rapid growth. Also it has now gotten bad press about privacy issues and 'following users after they logoff' and has not responded effectively. So while KK over expanded after its IPO, FB seems to have peaked before its IPO.

FB needs to spend its IPO money not on expanding like KK, but rather on re-invigorating its user base, fighting or buying competitors, and doing much better PR management which will get tougher after the public disclosures of how they actually make money kicks in.

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Response to KurtNYC (Reply #1)

Thu May 24, 2012, 01:49 PM

2. Good analysis, Kurt.

Thank you.

Must be mentioned that the Facebook IPO was clouded by insider seling of stocks, which came to light rather quickly.

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Response to KurtNYC (Original post)

Thu May 24, 2012, 01:53 PM

3. So the FatCats that signed up for FB four months ago....

Thought that this was a hotdeal, HAH, now they bought into a giant bubble shaped cow that only made a handful of people rich....

Small investors are wannabe's who the uber rich rely on to cover their losses.

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Response to Evasporque (Reply #3)

Thu May 24, 2012, 05:17 PM

4. I think it is possible that some in the know sold short

and bought when it dropped. Big brokerages are good at short selling and small investors generally don't do much of it. You have to borrow the shares you sell from an entity that owns some, eg. a brokerage.

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Response to KurtNYC (Reply #4)

Thu May 24, 2012, 06:17 PM

5. For the most part, 'dumb money' stayed away from this IPO.

Looks like they're still not convinced that FB's business model is a sound one.

I know I'm not.

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Response to Ikonoklast (Reply #5)

Fri May 25, 2012, 09:37 AM

6. read a really good article about how the value of users keeps falling

the amount of revenue that can be charged per user falls as users have more and more options. A big problem for FB right now is smart phones and non-PC access to FB because you can't push ads through those devices as the screen is too small. FB has a very low engagement ratio in terms of clicks per view -- Google is 1 click per 50 exposures; FB is believed to be around 1 per thousand. But the underlying point was that ALL ad-based revenue for ALL internet media companies continues a long slow decline. He goes on to say that FaceBook could take down the entire ad-revenue based model by diluting the value of ad exposures to a level where no one can make money anymore.

Here it is if you're interested:
http://www.technologyreview.com/web/40437/

And one more thought on Krispy Kreme. When they did their IPO they got buy-in from their customers: the IPO succeeded in attracting small investors who like the donuts. Once they bought stock, they become marketers for Krispy Kreme recommending the donuts to friends and to the office manager. I think FB was hoping for something similar. It fits their idea that they can turn the whole world into an online Tupperware party.

I think the best positioned platform for mobile phone ads is YouTube, easily. Perfect fit.

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Response to KurtNYC (Original post)

Fri May 25, 2012, 09:39 AM

7. I really am mad at the way they marched into people's homes and MADE them buy their stock

WTF Caveat Emptor people. Caveat Emptor.

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Response to CBGLuthier (Reply #7)

Fri May 25, 2012, 10:29 AM

9. That virtually happened with Enron -- Florida state pension fund managers mysteriously decided

to buy Enron stock in 2002 AFTER the scandal and the fall.

"Last October, after Enron announced $1.2 billion in losses and the Securities and Exchange Commission opened its investigation, the fund bought $7.1 million more of Enron stock. After Enron's chief financial officer, Andrew S. Fastow, was ousted on Oct. 24, the fund bought $16.1 million. When Enron announced last November that it had overstated its profits, the fund bought still another $11.7 million."

http://www.nytimes.com/2002/01/27/us/enron-s-many-strands-fallout-the-enron-scandal-grazes-another-bush-in-florida.html?pagewanted=all&src=pm

But I get your point.

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Response to KurtNYC (Original post)

Fri May 25, 2012, 09:43 AM

8. Instagram was a big WTF

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Response to JCMach1 (Reply #8)

Fri May 25, 2012, 10:36 AM

10. FB is trying to get on to phones

possibly want to use a new version of Instagram as a platform to extend the FB's reach. But it also I think shows that Zuck and friends are out of ideas of their own. The IPO money will fuel more of these aquisitions IMHO, both adjacent technologies and emerging competitors will be bought (like what MicroSoft used to do).

The square (Polaroid-style) aspect ratio leaves room for ads when displayed on 4:3 screens.

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