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Why I Passed On The Facebook IPO

Facebook is an incredible “Cinderella” like story!

They are managed by very young, intelligent people who can change direction quickly, considering their size.  I have two Facebook accounts (one personal and one for “Money Reasons”), so even while I use their service, I didn’t buy their IPO.

I have some friends that rushed in to buy the Facebook IPO (ticker symbol: FB), but I didn’t and here’s why…

  1. I figured the quick change in their interface will start to ween users off of the platform.  There is an old saying KISS – “Keep it stupid simple” (actually it’s “keep it simple stupid”, but I like the phrase “stupid simple” better because I think it’s more logical).  I think Facebook lost some participation on the site because of the change, and more importantly the fear of dramatic, complex, future changes.  The interface was simple and made sense previously, but now is a nightmare (especially for the non-tech crowd).
  2. Too many people valued it too highly, the market capitalization was at a nose-bleed valuation.  Based on the sharp declines of comparable online companies like Zynga and Groupon, why pay a premium for an internet site stock’s IPO?
  3. FB really doesn’t have that great of a moat around their business.  By moat I mean another business might come along with a better simple interface and steal facebooks thunder!  Before Facebook it was Microsoft’s MySpace.  But more importantly, I realized that if Apple decided to get into FB’s sandbox, Facebook is going to lose all the cool, hip kids…
  4. Facebook seems to be limiting its market segment to primarily females.  But the fact that they are changing their interface so quickly, many busy females and SAHMs don’t have the time to continually learn the new interface.  Hell, I’m a techie and I don’t want to learn the new interface…
  5. It’s a bad time to buy with the European crisis and the sideways movement of the stock market in the US.  Why buy when everything is sinking, all boats sink while the tide is going out.
  6. Facebook’s growth rate is slowing.  Unless the Martians start to sign up, it’s not going to improve.  While some point to China, I don’t think China will let Facebook complete…  Look at Google as an example for a reason not to believe in Facebook taking off in China.

So as you can see from my reasons, most of my basis is based on non-financial reasons.  That said, Facebook still might be a good investment if the stock get’s low enough…  They have an incredible team with a lot of potential.  I’m not sure of the price that FB would have to get at before I jump in and buy some shares, but I’m pretty sure it would have to drop below $20 a share.

I’ll be watching on the sidelines as the stock valuation plays out.


Disclaimer:  Obviously I don’t own Facebook. nor do I intend to buy any in the next 72 hours.

5 Responses to Why I Passed On The Facebook IPO

  1. First of all, wanted to say I am so glad your son is ok. That must have been so scary!

    Second, wanted to say hello!

    Third, I am with you regarding FB. I always think about how quickly myspace faded with the advent of FB, so I too wonder what is around the corner. I havent switched to the new formaypt either!

    • Good to see you online Kris! 🙂

      Hello back!

      Yeah, if Apple or Google (especially Apple) makes a more hip and easy to use environment, FB is in trouble, or at least it’s growth rate will slow down tremendously.

  2. The valuation was just too crazy. I don’t think they are worth more than AT&T, McDonald, or other big companies. People can just move on to the next big things. I rarely go on Facebook. I guess I’m just not cool these days.

    • Totally, the market cap was way too high! I knew at least two guys as work waiting to rush into that stock, but the math didn’t add up, especially when it was obvious that their growth was slowing.

      I’m starting to find and hear that less and less people are signing in anymore. So in the past you had people on it all the time, but now I know some people who don’t log on for weeks. Kind of sounds like a fad to me… Who knows though 🙂