As Facebook continues its search for a bottom after only eight trading days as a public company, there’s a much bigger problem than the $40 billion in market cap it has lost. The people behind Facebook’s dubious $100 billion-plus self-valuation were apparently as doubtful as the rest of us. At stake is the fate of Wall Street’s soul. To paraphrase Sir Thomas More’s line in A Man For All Seasons: “It profits a man nothing to give his soul for the whole world…” – but for Facebook?
Facebook’s interests are no more aligned with The Street’s than with its members‘. Wall Street needs to take the offense, see the handwriting on the wall and project itself as the ultimate defender of transparent, market principles, which is the only asset it has.
Facebook’s much-anticipated public launch has gone from bad to worse. It priced itself at the high range of $38 and opened 30 minutes late – some 20 of those with traders completely in the dark. Nasdaq has egg on its face and a possible liability in the tens of millions of dollars. Retail investors who bought into the hype are still losing money. Days after the May 18 launch, the tangled mess of positions that may or may not have been taken were still being unwound.
The Facebook fiasco revives the oldest knock against The Street: The little guy doesn’t have a chance. IPOs only reinforce this impression. Retail investors have little or no access to a roadshow, and roadshow presentations are borderline farcical anyway. (Did you catch any important financials in that Facebook roadshow video?)
But Facebook was worse than most. Three days into its roadshow, on May 9, Facebook added some bad news to its main regulatory filing. About one-third of the way into an amended filing with the SEC, Facebook speaks to the most important pillar of its revenue prospects: