Facebook is turning out to be the poster child for everything that is corrupt on Wall Street. From fraudulent representation of financials to the fleecing of widows and orphans. - Dave in Denver, May 22, 2012After posting its first earnings report as a full-blown public company, Facebook stock is down over 14% from last night's close as I write this. It hit a new low of $22.28 earlier. From IPO ($38) to low, Facebook stock has lost 41.3% of its value in just 51 days of trading as a public company. That represents a $33 billion dollar loss in wealth. Given that the reported number in the Madoff Ponzi scheme is around $20 billion, this makes Facebook the largest swindle in U.S. history (next to the U.S. Government's $16 trillion Treasury debt swindle).
I'm actually stunned that the Facebook collapse has happened this quickly. I expected the stock mania portion of the FB saga to last at least 6 months beyond FB's first earnings report. Speaking of which, the spin-meisters on Wall St. and the media are lauding FB for "meeting revenue expectations." Any idiot knew that this would be a no-brainer because FB's quarter was nearly 50% in the bag by the time the IPO occurred. Having worked on public offerings for companies, I know that the underwriter and primary analysts covering the deal have access to the inside numbers. Forecasting the revenue number was a no-brainer.
Where the "swindle" occurred was selling the "sizzle" of FB being the king of social networking and internet communication. The dreamy possibilities are endless. Just like at the height of the internet bubble. It's a "new economy and new business model with limitless profits." Well, the truth is that Facebook's operating margin plunged 10% from the same quarter a year ago and it generated negative $171 million in free cash flow. This means that it was spending more to generate each dollar revenue than each of those dollars was able generate in cash profit. This is essentially how a Ponzi scheme operates. Make no doubt about it, Zuckerberg and Morgan Stanley knew that Facebook would report ugly growth and profit margin numbers when they were hyping up the IPO. I know this because I've worked on securities offerings in the past.
What makes this most appalling is that it became apparent to the more "sophisticated" investors who were looking at the IPO during the road-show stage that the market value assumed using the likely IPO price was far higher than any true measure of value that could be assigned to FB. Many of these institutional investors were given a better look at the real numbers behind the IPO marketing spin and walked away. That left mostly the smaller investors vulnerable to the "share-stuff" done by Morgan Stanley right before the deal priced (Morgan Stanley retail customers were told they could only get 500 shares, only to end up with as much as 5,000 shares right before pricing).
Let's see, Long Term Capital, Enron, Refco, Amaranth, Countrywide, Washington Mutual, Lehman, Wachovia, MF Global, JP Morgan, Madoff, now Facebook - where and when will this end? Probably not until the country collapses economically then politically. The most appalling aspect in watching this America abortion unfold is that the guy in the Oval Office who was elected on the promise to clean all of this up has turned out to be the guy who has looked the other way while the nation's wealth is being swindled away by Wall Street banks, corporate operators and politicians.
When the history books are written on this era of our country, they will not be kind to Obama. He was ushered in on the euphoria of being the first African-American to be elected President. He will be remembered ignominiously by future generations and historians as the ultimate promoter of the great American swindle.