>> I bought and sold FB shares as a TRADE, not an investment. I lost money. When the stock didn’t bounce as I thought/hoped it would, I realized I was wrong and got out. It wasn’t the fault of the FB CFO that I lost money. It was my fault. I know that no one sells me shares of stock because they expect the price of the stock to go up. So someone saw me coming and they sold me the stock. That is the way the stock market works. When you sit at the trading terminal you look for the sucker. When you don’t see one, it’s you. In this case it was me.

That was probably my favorite part of the article. He screwed up and took responsibility for it! I'm not sure whether I should be impressed that he did or surprised that that taking responsibility for your behavior is so rare when everyone is always looking for someone to blame.

The post-IPO "pop" also benefits the giant investment banks that underwrite IPOs; it is essentially a large transfer of wealth from the company to the bank and the bank's best customers, indirected sufficiently so that it's hard to spot.

Whatever you may think of Cuban's caveat emptor stance regarding investor protections, he's right about Facebook's role in the IPO. The CFO's first duty is to the firm, and in this case it appears that Facebook made aggressive decisions to ensure that the IPO benefited them first and foremost. Which, ironically, serves the long-term best interests of outsiders who want a stake in Facebook.

Mark Cuban's Response to http://dealbook.nytimes.com/2012/09/03/david-ebersman-the-ma...

Like always, love his rationale and thinking. I never understood people's view that facebook needs to be obsessed with the stock price (apart from the mentioned employee options). That might just be the naive youngen in me, but what facebook should, and in my opinion does care bout is its product line and users.

Mark's article misses one key point. If it were a win then he wouldn't need to write a post defending it.

A poorly performing stock price matters a great deal. It matters in the leverage you have with partners, retaining senior leadership, hiring new employees and overall day to day morale in the office. So maximizing the short term cash ramp has left FB significantly exposed over the next 24 months. YHOO is a fantastic example of what happens if your company suddenly has the aura of "loser" in the Valley. (Hopefully they'll turn that around but jury's still out)

So rather than absolutely maximize the short term gain FB could have found a middle ground that wouldn't make them the punching bag of the media resulting in long term risks to employee morale and retention.

Full disclosure: I currently own FB shares (at a loss), but could sell at any time.

Cuban is right in that the Facebook IPO was great in that they sold their shares for higher than what they were worth and maximized the benefit for FB.

But the more important fact is that investors, who are the lifeblood of this entire market, got fleeced, and that's long-term bad.

The people that you do business with MUST have confidence that you will live up to your end of any deal that you make with them. If you're only going to do a single one-shot deal with someone, I suppose it's doable to screw them for whatever they're worth. That seems to be the Wall-Street-style business model that is popular with some people these days.

But if you intend to do business over and over again, screwing everyone you deal with is a great way to go broke very quickly. As well, if you attain the reputation of being someone that is bad to do business with, then you will suffer as well.

Do you think Andrew Mason is going to get as good of a ride on the next company once Groupon fails? How difficult will it be for Facebook to have another secondary if it needs to raise more capital?

My guess is that any new deals underwritten by Morgan Stanley will get a second look-over from any potential investors, given the fact that they really sold some snake oil with FB at $100B.

Mark presents some good points here. I like how he takes responsibility for his own trading losses and does the correct thing: he gets out when it doesn't do what he expects.

He's also correct that a company can reprice their options.

But all of that misses the point.

Later employees can have repriced options so they're no longer underwater but you have to remember that a lot of people went to Facebook in the latter days for a pre-IPO payoff that didn't eventuate. If their vesting options look little different to an RSU package they'd get from Google, there is no "golden handcuffs", which is what you really want for talent. If Facebook has to reprice their options to recreate that situation they may end up spending a lot of the cash they gained for the high IPO price.

Second, every company, every lawsuit, every war has a narrative. That narrative is important. If you're trying to get people on your side, the facts typically don't matter, the narrative does. Pre-IPO, Facebook's narrative was of going from strength to strength to the point where it had competitors scared that Facebook would be the Internet.

That is no longer the case. The spell is broken. Investors have realized this. No longer is Facebook the company with blue sky potential. It's (now) a company with a really high P/E ratio. Google, for example, peaked in 2007. Part of this was the highs of the market but part of it is also this shift from blue sky potential to viewing the company as a source of income. All this even though Google is making way more money than in 2007.

So Facebook may take years to regain the IPO price. Watch out for the pundits who see the $38 IPO price and consider $18 cheap. The first price we see for something tends to imprint strongly and we view all subsequent prices in those terms. It's a trap that could well lose a lot of people a lot of money.

Beyond employee and investor issues there is another problem here: companies tend to prefer to pay for acquisitions with stock rather than cash (eg Instagram was, at the time, $700M in stock and $300M in cash IIRC). If the narrative of your stock is one of it having consistently dropped since the IPO, it makes it harder to pay for acquisitions with stock as investors and founders have to price the stock based on expected losses rather than expected gains.

The key motivations in any market are fear and greed. If the stock has a history of going up (like Apple's in the last decade) then greed takes over and people want to get in. In Facebook's case, fear would be a significant factor now (given lock-ups of shares on acquisition, etc).

The problem with Facebook IMHO was that it waited too long to IPO. Of course as a colleague of mine likes to say, "that train has sailed" [sic].

One thing I that makes me chuckle is thinking back to the prices paid on secondary markets pre-IPO. Staunch FB defenders argued this was useful price discovery (one function of any market). Others (including me) argued that such markets were essentially echo chambers and the stock was too thinly traded to give meaningful price information. That view has turned out to be correct.

The best part of this whole story is that the wider market hasn't bought into the hype and has discounted Facebook stock accordingly. Any concern of us being in a bubble should go out the window.

"If the CFO of Facebook came on SharkTank..."

This statement should end with "I'd offer him $100K for 50% of his company".

I really like Mark Cuban, but I feel like that show is beneath him. I've seen it a few times and haven't found any teachable moments. His blog, however, is great.

He makes some great points, here. I like his quote, "When you sit at the trading terminal you look for the sucker. When you don’t see one, it’s you. In this case it was me." Interesting how he puts more blame on the buyer.

Also, sort of off topic (more related to just Mark Cuban), but I'm surprised he made that "SharkTank" reference. I've always wondered how he viewed his presence on that show. I figured he saw it more of a "charity case" because of his fame. I never realized he actually referenced it and promoted it.

They have a stock pile of money they wouldn't have had to play with for the next 2-3 years while they slowly grow their earnings. If they priced it at half they would have had half the money. Now they can sit back and relax. If you read the documents they clearly stated that they do not intend to be in it for the short-term and investors looking to buy shares should be thinking long-term. Zuckerberg seems to be a conservative dude who doesn't spend lavishly so he probably has a goal to make money and stock-pile it.

The only reason FB stock offering looks bad is because the market crashed for a moment halting the pop. If the market popped people would have nothing to say.

Cuban is spot-on.

The parallel to Google is deceiving; as phrased by Mark, some reader may think that Google had a similar IPO crash. Not true. The referenced article and Google's repricing is from Feb 2009, when GOOG (then already a mature stock) had lost lots of value due to the global market crash a few months before. Completely unrelated cases.

Other than AMT tax no Facebook employee can see the difference between the stock IPOing at $38 then falling to $18 and the stock IPOing and $18. Sure the is a lot more sturm und drang in one of the scenarios but at some point the price starts representing the market's view (right or wrong of the future). This is predicated on my assumption that Facebook's true value is closer to $4 (adjusting down to a P/E of around 20- I don't see a lot of growth potential despite claims like: http://techcrunch.com/2012/08/30/party-like-its-1990-some-ct... ). I don't short because for that to be profitable you need to be 1) more informed and more certain, 2) have some idea of the timing of the market coming around to your point of view.

Personally I think it is sad. FB tricks people into paying too much, and then some wealthy guy who should have been able to evaluate the offer properly gets fooled, but because he can afford the loss he tries to justify the whole thing, so that perhaps he can pull the same nasty stunt like that sometime in the future.

Using Cuban's own auction analogy, he was basically defrauded by buying a 'fake' collectors item, and thinks the fault lies with the purchasers (for not recognizing a fake when they see it) not the sellers or the auction house for perpetrating this ruse.

Paul.

I agree with his larger points, but i think it's only fair to point out the date on that article about Google options.

That was the very bottom of the market. Googles issues were macro. And the high-water mark in GOOG before that event was set by investors, not underwriters.

But fundamentally I don't think FB did anything wrong. As an armchair economist it looks to me like Facebook had enough strength in their order book to justify their $38 IPO price. You can't blame them for trying to maximize their one-time-only uber-billion-dollar liquidity event.

What about the damn underwriters of this thing? Given the volumes offered, it was priced to go one way: down. So they maximized the offering but now the whole enterprise is worth half. Is the cash in the bank and the founder's coffers worth it? I have no idea, but I would think for employee compensation and morale purposes, it probably would've been better to leave a little on the table. Hell, their prospects looked like they were declining right on the eve of the IPO. What did everyone think would happen?

Articles like the Sorkin piece have been appearing since the IPO because public shaming is the only tool disgruntled investors have to influence the company while Zuckerberg retains voting control. The market is looking for a dramatic (if temporary) gesture that will fluff the stock long enough for the muppets who got stuck holding the bag to dump their stock on some greater fools.

I've been saying this for a while. Facebook and Zuck made out great on the IPO. They got everything they wanted out of it. The people who lost were the speculative buyers who thought the stock was actually worth that much and the underwriters who lost money propping up the stock price on the IPO day sell-off.

naturally cuban thinks baiting suckers is a winning tactic, it describes his own success at taking yahoo's billion dollars for a company that didn't really exist. but note it also describes his string of tech failures ever since.

Cuban is right, however I think there might have been some fraudulent (but possibly not illegal) activity of the underwriting bank to prop up the price on IPO day and in the days after...

I largely agree with Cuban. But there is risk associated with going out too high. You can reprice options, but that introduces new complexities and risks.

I love Mark Cuban, but he's totally wrong here. He said the role of the CFO is to manage the company not the stock. Well, once you open the doors to investors and banks, they become your lifeblood. When you go public, guess what? Your goal is to make the people and banks investing in your company money. Otherwise guess what happens? Exactly what's happening now. The stock takes a huge dive and your company loses a ton of its value.

FB may have put $10 billion in the bank, but the market took $50 billion out of its value. Not exactly a win is it?

due to the massive information asymmetry, didn't FB have a legal and moral obligation to provide an accurate valuation? this was my understanding from reading all the post-IPO anti-facebook fallout articles.

The valuation of the FB IPO was floored by the private market trades in 2010-2011.

Ironic historical quote from the 2009 article:

'Google gives away free lunches to employees, but that didn’t compel everyone else to do it,” he said.'