A few months ago I got a call. A friend of a friend wanted to buy a billion dollars worth of Facebook. He didn’t’ want to pay higher than $30. So I made some calls for him and I found him someone who wanted to sell a billion dollars worth. Literally the king or Emperor or whatever of some Asian country. Only he wanted $32. In the middle were two lawyers, two brokers, an exchange that deals with these sorts of private transactions, three or four middlemen on each side (friends of friends of friends) and the secretary of this supposed king. When a price was finally reached, the secretary wanted 50% of the fee. So with 20+ people in the middle the deal was called off at the last minute.
That was just two months ago. Maybe less. Facebook went public last Friday. And suddenly everyone was saying, “I hate Facebook”. “Facebook is a fad”, Blah blah blah. Everyone wants to act smarter than the next person.
Because of evolution and biology the best way to sound smart is to trash something. It means you are more aware of the dangers in your surroundings. The more aware you are of danger, the less likely you are to be eaten by bears and the more likely you are to hunt for food.
Good for you.
When Facebook went public it priced at the higher end of its range ($38). The original range was $28-$35. They not only raised their range but they raised the amount they were raising from $10 billion to $12.5 billion.
And guess what, they closed up on the day. And on Monday, they closed at $34. Down a few bucks but still close to a $100 billion market cap and still right next to the upper end of their original range.
But haters gonna hate.
Let’s look at what the mainstream media had to say about Facebook after the IPO was over Friday evening. It’s a funny and important lesson. Here were some of the headlines:
Facebook: The new Mount St. Helens? at MarketWatch
Facebook falls flat in public debut AP
10 of the stocks that outperformed Facebook at MarketWatch
Is This a Terrible Sign for Facebook Investors? at Motley Fool
Facebook IPO Fails To Boost Morgan Stanley at Forbes
Scramble for Facebook stock ends in “Face-flop”at Reuters
No First Day Traction For The Facebook IPO at Seeking Alpha
What the hell happened? You would think Facebook was going bankrupt, that they made every mistake in the book, that the IPO was a total failure and that everyone lost money. There was not a single positive headline. And that much mainstream media must be correct, right?
(Congratulations in every way to Mark Zuckerberg. Just in the beginning of an amazing life)
But guess what. Let’s look at the actual FACTS.
-Facebook closed positive on the day. So anyone who bought the IPO was up.
- Facebook closed at higher than $100 billion market value. That’s incredible. Particularly since I was trying to negotiate Facebook share transactions 20% lower just a month or so earlier.
- Facebook managed to pay their bankers only a 1% fee instead of the traditional 6% fee. So that’s a stab against Wall Street. Finally a company had the guts to kick Wall Street back where it belongs! Go Facebook!
- Facebook put $12.5 billion in the bank. That’s incredible.
So it looks like this was a home run to Facebook. Why didn’t a single media outlet report it that way? Why wasn’t there one headline that said, “Facebook makes a HOMERUN!”
I’m not biased. I could care less if the IPO had “failed”. But it didn’t. It was probably the most successful IPO in history, in that Wall Street didn’t suck the company dry at the expense of all shareholders.
But haters gonna hate.
Then today someone asked me, “but don’t you think Facebook will cause inflation?”
Guess where that questioner lived. In San Francisco.
Yes! Of course in the one city on the planet where $100 billion in extra millionaires was just created, real estate values will go up. The price of your bug-coated pink iced-frappucinos in Starbucks will probably go up as well.
But in the rest of the world, Facebook has a deflationary effect. For instance, where else can I potentially advertise to a billion people for pennies. If I want to advertise to 40mm people (the Superbowl) for 30 seconds I’d have to spend $4-5 million after production costs. But on Facebook: I might pay 1/1000 of that to reach the same number of people.
And when my marketing costs are lower, my product costs can be lower. The Internet in general has a powerful deflationary effect.
For instance, I will take a completely different example. The value of your neighbors has just deflated considerably. It used to be if someone wanted to be your friend they simply had to live near you. They didn’t really have to do much else.
But Facebook connects me to people all over the world. I CHOOSE to only be around people who really like me and who I really like. So now my neighbors have to step it up a bit. The value of their actions has deflated so their actions have to be better, nicer, kinder, more inspiring.
There’s going to be deflation in rudeness, in the lack of caring that pervades our different societies for the weak and helpless and for the countries that are not as well off. Why? Because now we are connected to them. Now we are friends with them.
Friends trade with each other. They don’t kill each other. Friends listen to each other. They fight over religion and politics but hug it out the next day.
So why are the reporters so angry?
Always check the agendas versus the facts. Never listen to the mainstream media. Once again, it all boils down to tracking the money. Mark Zuckerberg made $30 billion on Friday. Reporters made nothing but a headline.
And then Mark Zuckerberg got married on Saturday. That’s right: he’s a pretty happy guy.
And most people aren’t.