The Facebook is the most important IPO to EVER hit the StockMarkets – But not for the reasons you think

The Facebook IPO is the most important IPO to hit the stock market in …..forever. Not because of its size in dollars. Not because of the gap up it may experience in its first day of trading. Nope. Its the most important IPO ever because:

1. It could lead to individual retail investors coming back into the market.

For the first time in a long time I had someone ask me what I thought about an IPO. THey wanted to know if they should buy Facebook at its IPO.

If lots of individual, retail investors do buy into Facebook and they make money at it, that could lead to individual retail investors coming back into the market. Something that individuals smartly have avoided for the last several years.

Retail buyers making money would be great for the market..

or would it ?

2. High Frequency Traders LOVE RETAIL INVESTORS.

Facebook will be a highly liquid name. Perfect for High Frequency/Algorithmic Traders (HFTA). If Facebook is a huge draw for individual retail investors, HFTA Traders will see them as lambs waiting to be slaughtered. They will feast on the unwashed, unsophisticated mass of retail buyers dashing into Facebook. THey will pray that the stock skyrockets and stories of individuals making out like bandits are spread throughout the media. They will attack this stock like a pack of wolves.

What happens from there is anyone’s guess. But I can tell you that no one is hoping for an explosion in the price of Facebook more than High Frequency/Algorithmic traders.

Facebook could be the most important IPO in the history.

But not for the reasons you think..

50 thoughts on “The Facebook is the most important IPO to EVER hit the StockMarkets – But not for the reasons you think

  1. Well Mark, based upon your post most of us including me should never get into the stock market. I’m strictly in cash and cd’s.

    I get the feeling that the FB IPO wasn’t in their best interest. I’m assuming they make a lot of money anyway from ads and other consulting work.

    Sounds to me like the stock market is a fools game, and even the players like yourself can get burned.

    Comment by markgrove -

  2. I am sure a lot of people won from the overvaluation of Facebook

    Comment by Manescu Florin -

  3. I’m guessing mobile will be getting “virtually larger”, as evidenced by the development of those Google glasses and other augmented reality tech toys that will come to market.

    Comment by Conquering suckiness (@SucksPolice) -

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  5. Mark,
    Here is a GREAT Business Plan that complies to your Stimulus Plan rules. With your insight, we can bring jobs and commerce to every corner. Background of the concept: I began my career with 84 Lumber, a Pittsburgh firm who’s Billionaire owner was also from Mt Lebanon, where I was on the team that grew this into a national and highly profitable chain. Lessons learned were how to watch costs, not tie up to much in inventory at one location and motivate employees. Additionally, I admire the Five Below retail concept but we can improve with better inventory, small space requirements and fewer associates. Enjoy!

    Stimulus Plan Business Proposal Synopsis – Start Up 25 25 STORE

    Retail Concept (Best in Class Products, constantly evolving line up, One Price, and Motivated Team)

    25 25 Store and the 5 5 5 Store

    Lean, Mean, Hiring and Profit Generating Machine
    • Great Sales Teams are adaptible, the backbone of any profitible retail firm, and must be compensated adequetly in order to exceed ever increasing quotas.
    • A Unique alternative to the traditional Retail Business Model must address common inventory problems; disproportionate dollars tied up, slow turn over, dead skus and limited shelf life.
    • Strategic site selection greatly impacts bottom line. Discounted retail space in high traffic areas kills two birds with one stone.
    • Savvy and flexible buyers locate globally the very best products within specific target cost range.
    • Policy & Procedure Manual promotes uniform training, duplication, profitibility.
    25 25 Store
    Concept: 25 for $25 Twenty five product skus with everything at one price. $25 IE Gifts, Sporting Goods, Women’s Wear, Men’s Wear, Housewares
    Inventory 25 products @ 40 stock level = 1,000 items at $8 delivered cost. Total $8,000 13.7 turns
    Three associates scheduled at 50 hours per week will cover Monday-Saturday 9-9 and Sunday 10-5
    Associates – minimum wage plus OT: Salary of $22,000 plus $1,500 monthly bonus = $40K annual
    Gross Sales Gross Profit
    Revenue Weekly $6,600.00 $4,488.00
    Gross Monthly(4.33) $28,578.00 $19,433.04
    Gross Yearly $342,936.00 $233,196.48

    Gross Yearly wages 130,000.00
    Gross wage Overhead(.3) 39,000.00
    Gross annual expense 12 months @ $2500 per month 30,000.00

    Net Profit (gross – wage) $64,196.48
    Pre Tax Net Profit per store $34,196.48
    Pre tax Net Profit % 9.97%

    Seek out retail space in malls – strip centers at amazing, favorable and flexible terms.
    Product sourcing via global, non-conventional markets. Best in class at deep discount and shipping.
    Identify ambitous, intellegent associates with great aspirations and develop a family culture.
    Lead from the front but roll up sleeves and teach by example.
    Establish controls to protect assets and maintain a “we can’t afford it” attitude toward expenses.
    Capital requirement: $65K per unit based on $24.5K assets, 2 months wages and 3 months overhead.

    5 5 5 Store
    Smaller but Flexible, scalable, duplicatible version of the 25 25 Store
    Concept for mall kiosks, unique spaces, seasonal opportunities.
    Features include 25 skus in each of five, flexible product categories.
    One price $5 IE Make-up, Jewelry, I Phone accessories, Stocking Stuffers

    Inventory 125 products @ 40 stock level = 5,000 items at $1.60 delivered cost. Total $8,000 13.7 turns
    Similar Per unit revenue, wage, overhead and profitablilty as the 25 25 Store.

    Bottom line: Take advantage of leasing and sourcing opportunities; Train great sales team, Listen to the market; Learn, adapt and grow.
    one accessories

    Inventory 125 products @ 40 stock level = 5,000 items at $1.60 delivered cost. Total $8,000 13.7 turns

    Similar Per unit revenue, wage, overhead and profitablilty as the 25 25 Store.

    Bottom line: Build a Brand. Take advantage of leasing and sourcing opportunities. Train great sales team. Listen to the market. Learn, adapt and grow.
    Suggested initial funding in $100K range with a 50 % equity position for investor.

    Comment by Craig Stowell (@floridabizguy) -

  6. Pingback: Facebook’s Sudden Realization That Stockmarkets are the Ultimate Social Media $FB $GOOG $SOCL « FinancialSkeptic's Blog

  7. I swear I reread my comment a few times before posting it and yet I still left out a “the” in the very first sentence. Drives me nuts.

    Comment by alexlogic -

  8. the facebook IPO Gone down so early. No one expected that.

    Comment by Domains India -

    • If Facebook had started at one dollar a share, they would have been the talk of investing world for the next several years as the inevitable escalating share price would have made many investors decent money.

      However, at a dollar a share, the amount initially raised to line the pockets of those who created facebook would have been a lot less, unless shareholders simply held onto their shares for a few months and watched the price skyrocket into the 10 dollar to 20 dollar range.

      The fact that Facebook operatives don’t care that they overpriced the value of their company is why it is a strange company. Facebook has no real customer service even while providing a product for everyday people yet not allowing those everyday people to advertise their own websites or personal services.

      It’s a strange brew indeed and helps explain why there has been a job loss in this country. If companies like facebook and google, as big as they are, have no public customer service division, than that becomes the “jobs” model of the future.

      Comment by alexlogic -

  9. Big fan mark and your great on the shark tank! Richard from

    Comment by amishstories -

  10. Preaching to the choir here, but check this out.. Thoughts? Surprised?

    Comment by iCapitalMedia (@icapitalmedia) -

  11. My only regret is that options trading in Facebook doesn’t start until a week later. I really really wanted to buy some puts on Facebook from day 1. However, I have to wait a week, and by then, I suspect the stock price will be nearing 50% of the issue price.

    Comment by davesmall (@davesmall) -

  12. FB IPO broke on Monday – think retail investors will come back now?

    Comment by Don Jones (@VentureDeal) -

  13. So FB never got much of a pop at the IPO and closed down $4 from the offering price today. On the one hand, I guess this means the underwriters actually did a good job maximizing value for FB. But really, I think most people with major stakes were looking for excess demand to cause an initial spike and are disappointed in how things have turned out so far.

    As far as retail investors, this seems to indicate the FB is not drawing large amounts of investors into the market. Lots of people may be interested in it and talking about it, but not so many are actually buying it. I guess that is a lot like the ads on FB – fun to talk about how many users you can reach, but hard to actually get any measurable value from it.

    If a super-hyped IPO like FB can’t achieve an initial bounce when rates are near 0% and investors are starved for risk, then I definitely don’t think that bodes well for equity investments in general and tech in particular. Or I guess it could be that their business model doesn’t work, but that would be too simple …

    Comment by jlai24 -

  14. Very insightful posting – lots of retail type interest in FB. As it turns out, it wasn’t to be. European debt crackups very much on investors minds, and frothy valuation scared the institutional investors away on 1st day at least. Don’t anticipate big run-up in price in the next couple of weeks at least.

    Comment by David Scott (@DavidScott19) -

  15. Facebook’s market cap is bigger than most established companies, I am predicting a decline in when it sells on the secondary market. The problem with these companies is their valuation is based on the number of eye balls/audience instead of being valued based on profits, and revenue model.

    Comment by startupsoldto -

  16. Pingback: Billionaires Take To Twitter To Talk Up Facebook | Social Media Blog Sites

  17. Monday will be interesting.. those retail investors didn’t show up today (and I think given 48 hours to think it over they’ll continue to do so). $34 by Tuesday? Possible.

    Comment by chris youra (@chrisyoura) -

  18. I think everyone on facebook should short 100 shares and simultaneously de-friend their whole clan as they unplug their account. Sort of a cyber bra burning with financial upside.

    Comment by givingumbrage -

  19. Haven’t we all seen this story enough to know how it ends? With just enough exceptions (like Google IPO at $85) to keep those hopes of instant riches alive, most tech IPOs have been poison for small-time schmucks. Remember: If you don’t know who the fool in the room is, you are the fool.

    Comment by LSAT Get Prepped (@LSATGetPrepped) -

  20. Hi Mark. Love to talk to you.
    Marco Jouve

    Comment by Marco Jouve (@MarcoJouve) -

  21. Like a previous comment said, last one out is a rotten egg.
    We’ve seen this story at least twice since 1999 (with just enough variations so that folks can argue, “It really is different this time.”)
    Maybe third time will be the charm and the small-time schmucks will learn to stay away from tech IPO’s where the only people who make money are the founders and early money. Sure, we can point to a few home runs (Google opening at $85. Btw, article comparing Google to Facebook
    But the web 1.0 and 2.0 duds outnumber the winners by a big margin.
    “If you don’t know who the fool is, you are the fool.” – Article on how F has used the underwriters to whip up this frenzy-

    Comment by LSAT Get Prepped (@LSATGetPrepped) -

  22. Pingback: FT Alphaville » 18/05/2012 (Before-FB)

  23. Pingback: Friday 7atSeven: Facebook frenzy | Abnormal Returns

  24. satire 🙂 I like the random capital TH in THey too!

    Comment by Craig Dahl (@VikingRaidor) -

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  26. I personally think if anyone has any brains, they shouldn’t go anywhere near Facebook, as far as buying any of their stock. Most people won’t be able to
    buy shares of it anyway. Chances are it will skyrocket. The stock price that is.

    It will be a lot higher than Google ever got. And the High Frequency Traders
    like Mark said will take it over. I would say Facebook never should have implemented an IPO. They were already rich.

    They have a lot to lose if the IPO doesn’t go their way. I realize they’re paying
    high priced lawyers and stock market professionals to take care of it all for them.

    Like Mark always said, stay away from the stock market people.

    Comment by CanadianGuitarPlayer (@mdgrove) -

  27. Gee, what an inventive angle. Is there a smartphone app for inserting anti-HFT theories into any random blog post?

    Comment by slackful -

  28. Mark,

    I know you smartly collared YHOO with Broadcast and need your advice for someone with a 6 month lockup on FB shares. Once option trading starts I will utilize a collar buying puts and writing calls at the same time. My question is:

    1. Should I buy OTM puts/ sell OTM calls?


    2. Should I buy OTM puts/sell ITM calls?

    My gut is saying sell ITM calls as then this should cover the likely high premium for puts but everywhere I read they are saying sell OTM calls.

    Any thoughts?

    Comment by andrewmarcus1234 -

  29. I received this comment from a Rocket Scientist friend of mine,
    “This def signifies the “end” of the world as we know it… How can this be the largest IPO ever when they don’t even make something of any value!!! =O”
    the future does not belong to FACEBOOK but to whomever owns WATER

    Comment by gerry maxey (@gerrymax) -

  30. Pingback: The Facebook is the most important IPO to EVER hit the StockMarkets – But not for the reasons you think | TecBridge

  31. I think you are spot on Mark. A $104 billion market capitalization puts Facebook at more than 100 times its trailing earnings. Over inflated very much so. I have to give it up to him though Zuck has done very well, with smarts and timing on his side.

    Question for Mark: Given the explosion that takes place with good ideas and social networks. Would you consider or have you ever invested in a Social/Group Network startup?

    Comment by WeShare Network (@WeShare_Network) -

  32. i consider it likely that we’ll get an IPO pop and then bubble 2.0 (social media bubble) bursts from there. the more meaningful issue is as capital exits bubble 2.0, where will it go? that’s the next bull market, which will also likely to be turned into a bubble because monetary policy remains so inflationary. my bet is on the natural resource sector (drilling and mining).

    Comment by kidmercury -

  33. A shark tank finale? Really? They gotta bring back the wine in a glass guy for the finale.

    Comment by alexlogic -

  34. I think facebook advertising sucks.

    I tried paying for an ad that for my video consulting blog and they froze it after a day. I tried paying for the ad again, and they froze it again. I tried calling them, oh wait, facebook has NO CUSTOMER SERVICE line, f em.

    But then again, what kind of a scumbag actually has the audacity to try and advertise their own services on facebook, Facebook advertising is for consumption of fortune five hundred products by the masses, anything smaller than that will require a huge customer service division.

    Why should a company worth 100 billions dollars have a customer service department, the audacity of such a concept. (please note the snarkcasm).

    Comment by alexlogic -

  35. Reblogged this on Ode To Capitalism.

    Comment by Ode To Capitalism -

  36. Hi Mark,

    What do you think about user base as a valuation metric for commercial internet tech stocks? At a projected $100bn valuation from its IPO, that’s around $111 per Facebook user. Instagram had around 40 million users at the time of its $1bn acquisition, so that’s $25 per user, which makes relative sense. Is this a trend that we might begin to see as Wall Street continues to struggle to accurately value social web companies that don’t have a tried and true monetization strategy, but are very popular?

    Comment by Ian Crowley -

  37. Aside from that, it’s possible Facebook has peaked (in terms of users). There was always a concern of what would happen when the “cool” people left for new pastures, and guess what? They have!

    Comment by Howard Stein (@STUDIODOON) -

  38. I think that Facebook’s IPO is highly inflated, at best. Major brands want to incorporate social media into their advertising budgets because it’s the new, sexy, hot thing and can drive massive amounts of traffic and brand awareness.

    That being said, most companies we have worked with don’t get past the “I’m going to test Facebook advertising and then go from there” phase. The reason is simple: it’s extremely difficult to generate an ROI with Facebook ads and once you get the spike in traffic but don’t see any new business or leads come in you’re onto the next thing.

    Don’t get me wrong, Facebook is an amazing company and isn’t going anywhere anytime soon. Additionally, with the amount of data they obtain on a daily basis, they are worth billions from that alone. Not to mention, who knows what other monetization strategies that Facebook pursues in the future.

    Overall, I don’t believe Facebook is a $100 billion dollar company today, I’m not saying that they can’t be in the future, but right now they are not and will definitely dip if they have such a large IPO.

    Comment by Alex Becker (@aybecker) -

  39. Two comments:

    1. I don’t think the Facebook IPO will be a meaningful catalyst to bringing retail investors back to equities. Sure someone might grab a few shares of Facebook because “$40 looks cheap”, not giving any thought about valuation. However I doubt it’s going to cause a meaningful slow down to the massive redemptions equity funds have been experiencing for the past few years.

    2. I have yet to understand your outright disgust with high frequency traders. They make markets, they serve a purpose. If the retail investor wants to trade in and out of Facebook then sure, they will probably lose their lunch. However, I think most individuals will think of this as a “long term investment”, I’ll buy a few shares and sit on them for 3-5 years. The scary part is that “I’ll buy a few shares and sit on them” will be the extent of their due diligence, not high frequency traders. Also I think the people who most want a run up in shares is the guys who got in on the IPO.

    Comment by Pablo (@SharkWolfLion) -

  40. Algorithmic traders are chartists – making the stock more predictable – funds coming in with window dressing at month ends will want this as well- They underperform, the fund managers exit the stock in a high volume predictable way. I believe you can play this wave, if you’re educated, better than a Groupon wave- its predictable growing revenue, and while the common investor is going to buy it, the trading will be similar to a Netflix, Priceline style stock, once the first 60 days are under the market’s belt.

    Comment by Skip Middleton -

  41. mark

    i think u mean highly volatile, not highly liquid. And those who step in to add liquidity in high volatility take more risk, and by definition deserve the reward. If it were mot for speculators, our markets would be dollars wide for consumers.

    the goose

    Comment by jimgoose -

  42. I agree with your assessment Mr. Cuban.

    Stock market is a rigged casino being propped up by HFTA and ZIRP. Last one out is a dead, rotten egg.

    I feel like the entire run-up and maintenance of S&P levels is strictly for this IPO and once the banks get their cash, they are out for the summer and/or until the market bottoms out.

    Can’t wait for tomorrow… but not because of FB IPO… because of the SharkTank finale.

    Comment by imaurer (@imaurer) -

  43. Mark,

    Grant Cardone said make a list of 3-5 people you want to work for, find a way to get in front of them, and sell yourself. Let’s set things up so I can get it done please.

    Comment by imnojoke22 -

  44. Fairly small time retail investor here, signed up for 500 shares via my financial advisor at Morgan Stanley. I use Facebook frequently as do most of my friends and family members and think its a fantastic company, but I don’t pretend to have an edge on the professionals in valuing it (I haven’t even taken a decent look at the financials to date). Any advice for what to do post-IPO? Both selling after a quick runup and holding long term seem reasonable to me, but again I am the guy who excites the HFTs. Worst option certainly seems to be trying to time the peak before inevitable decline though……

    Comment by Brian Hastings (@brianchastings) -

  45. Great perspective. Thanks Mark.

    Comment by Stephen Medawar (@stephenmedawar) -

  46. The hype on this IPO is so immense, and Facebook touches people’s lives so much, that your prediction is nearly inevitable

    Comment by Beachhead Marketing (@AskBeachhead) -

  47. so what did you tell your friend?

    Comment by Jason Ip (@the_real_jay) -

  48. Mark, let me fix up your blog for you… this template does not do your content justice sir.. feel free to contact me here.

    Looking forward to helping you out.

    Comment by Jeff Setzer -

  49. Facebook is doing so many things to keep its service fresh and desired, it definitely is deemed worthy of investment. If I was a business owner, I’d definitely like a cut of this

    Comment by s1yfox -

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