What should have turned into an historic day for the post-recession IPO market has turned into a calamity. Facebook (FB) 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.
It's a business model built on loyalty - where users of the website and service come back day after day, sometimes minute after minute - because it "feels good" to be a part of what's going on in the worlds of those listed in the 'friends' and 'family' sections of their Facebook page.
That all changed overnight.
The good feeling about Facebook is no more, at least not in the hearts and minds of way too many of its loyal users - especially those who believed the hype when they shouldn't have. After the IPO hit with a thud and the share price tumbled down instead of flying up, a bad taste is left - and that's not good for business.
Ironically, had the IPO been priced lower and the share price been allowed to run higher, then Facebook the business may have been able to capitalize on the emotion behind the already monumental growth story that it has become and cemented its place in time as more than just the latest fad.
Unfortunately, that was not the case. Facebook has now become a story of modern day greed, where the already-to-be zillionaires, billionaires and millionaires needed to milk those last few bucks from the little guy in order to bank those extra zeroes on the end of their pay day.
That certainly made a happy guy out of Zuckerberg - and the underwriters, bankers and insiders won't complain, either, but as the share price heads south, then the faith that consumers put in this 'feel good' story goes south along with it.
And then the lawsuits came.
Barely a handful of trading days have passed since the IPO and already the sharks are circling. New shareholders unhappy with the way their bet turned out are gathering with fury to be reimbursed, claiming to have been misled in the days and weeks before the IPO.
There is certainly an argument to be made in for this case, but in reality, these shareholders looking for compensation cannot claim that they were ignorant to the facts when many a media outlet, including this website, made the case that the FB IPO was one based on hype and emotion, not one based on logic and numbers.
To cry "wolf" when the bet goes wrong is weak.
It's the same as suing a company whose shares suddenly and unexpectedly rose because you had already decided to write it off as a tax loss, only to have sudden capital gains to pay now.
Do you ever see someone sue for that? No, you don't.
If you're going to play the game, you're going to get burned sometimes. That's the risk you take. And you're going to get burned more often than not if you don't do your homework and invest on emotion and hype, as those who jumped on the FB band wagon did.
The signs were there. A valuation of 100 times earnings for a company that has had its "product" on the market for some time now was a huge risk, but just because that risk didn't work out, does that mean the ones who lost can sue?
Only in America.
As I argued before, the insiders saw the timing ripe to milk Facebook for all it was worth and make themselves all rich beyond the little guy's imagination, so they hyped and hyped and fueled the rabid emotions behind the loyal Facebook followers and then they jumped.
That was good for business at the time, and these guys probably don't care at all how the company turns out in the long run - they're all super-rich, after all - but there's a huge chink in the Facebook armour now after the botched IPO, and competitors could be watching, hoping to take advantage.
It's far fetched to believe that the ego maniacal actions of the Facebook insiders could kill the long term potential of the entire company - after all Americans are quick to forget (remember when everyone flew flags after 9/11?) - but MySpace dropped off the map overnight for not doing near as much to tee off its clientele.
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.
And through it all?
Nothing heard from the company since they're all on IPO-money vacations and spending sprees.
Looks like they've 'un-friended' the fan base, which happens to be the little guys behind the growth all these years.
Disclosure: No positions.
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