How Many "Dumb F*cks" Rocked Facebook's IPO Like It's 1999?
The term "Dumb F*cks" has hung over Mark Zuckerberg like a dark cloud over the course of the last 8 years. Not because his nickname "Zuck" rhymes with the expletive, but because the CEO of today's largest social network derided his early FB users as such. In 2004, when first percolating the idea of FB in a Harvard dorm room and asked how he attracted so many followers so quickly, he off-handily responded they were following him blindly, like "Dumb F*cks."
In the graphic novel satire, "Facebucks & Dumb F*cks," Zuckerberg is lampooned as an omnipotent modern-day Pied Piper leading the blind toward a precarious social networking precipice which is still yet to be determined.
Now 8 years later, one might ponder if FB's 900 million users are still "Dumb F*cks" ready to queue up for what comes next? And if so, is the precipice "Zuck" is anxiously leading them to, the highly anticipated stock market debut, scheduled for May 18, 2012.
If even only a fraction of FB users decide to invest in Facebook's IPO, at say a $32 per share price (range is actually US$28 -$38), the social networking company is on track to raise $10.6 billion in its debut that could value Facebook at $86 billion. Other more aggressive analysts put it closer to 100 billion.
With investment banks having the first crack at the majority of pre-IPO stock, Scott Sweet of research firm IPO Boutique says, “I have not seen as broad-based interest in an IPO since Google. Investor demand is immense.”
“I expect a road show that will rival all road shows where investors will be turned away at the door.”
When one remembers the dot-com bubble of the late 90s and how in less than 5 years, Internet darlings like Pets.com collapsed completely under what many now describe as a "false economy," could history be repeating itself?
A canonical "dot-com" company's business model relied on harnessing network effects by operating at a sustained net loss to build market share (or mind share). These companies offered their services or end product for free with the expectation that they could build enough brand awareness to charge profitable rates for their services later. The motto "get big fast" reflected this strategy.
During the loss period the companies relied on venture capital and especially initial public offerings of stock to pay their expenses while having no source of income at all. The novelty of these stocks, combined with the difficulty of valuing the companies, sent many stocks to dizzying heights and made the initial controllers of the company wildly rich on paper. But only for a short period of time.
Mike Crofton, CEO of Philadelphia Trust Company, said the buzz surrounding FB's IPO is “kind of like the technology craze we saw in 1998 to 1999. We’ll see how it trades a couple of weeks out.” He added tech firms including Google, Microsoft, and Intel are valued affordably, and will look even cheaper compared to Facebook.
But Francis Gaskins, president of IPODesktop.com, said investors should be wary of a company pricing its IPO at 91 times profit.
“It seems like what they’re doing is throwing a lot of things in the wild and hoping some things will hit. We don’t know what’s happening in the mobile area, their users have kind of plateaued and they’re growing in areas that don’t have disposable advertising income. This company feels a little bit like 1999. ”
Peter Cauwels and Didier Sornette, entrepreneurial risk analysts at the Swiss Federal Institute of Technology Zurich caution buyers regarding future growth of FB or lack thereof. They see a slow-down ahead. Instead of an ever-evolving exponential 'growth' curve, they see it transitioning into an S-curve.
The researchers’ model puts Facebook’s fundamental value – even with the most optimistic, but realistic, growth forecasts – at no more than $30 billion. Cauwels credits the company’s unique position as the biggest social-networking start-up as worth another $30 billion.
“Investors should be aware that everything they pay above $30 billion is just an option on future potential, and everything above $60 billion is bubble money,” he said.
So the question remains, how many "Dumb F*cks" will play follow-the-leader once again, and either lose their shirt or ride the most exuberant IPO since the dawn of man? Has "Dumb F*cks" finally lost its taint and actually become a badge of honor? Your thoughts readers?