by Lisa Swan on May 23, 2012
While Wall Street seemed to go into a frenzy last week over Facebook’s impending initial public offering, some analysts made it clear that they wouldn’t “friend” the company. Now Bloomberg News says that these voices are looking like “heroes” since the stock has tanked.
Brian Wieser of Pivotal Research Group and Richard Greenfield of BTIG were two of the experts who were not confident in adding Facebook to their group of stocks. Wieser told Bloomberg Tuesday that with something as high-profile as Facebook, “there’s always a risk of buying into excessive hype, using rules of thumb for valuation that are divorced from fundamentals.” He also talked about the “uncertainty” surrounding the investment.
Greenfield had said that Facebook’s “upside” was not enough to advise investors to buy it, and he especially warned not to purchase it if it went up above $35 a share. He told the Wall Street Journal that his company found Facebook’s present valuation “unappealing.”
Wieser told Bloomberg that Facebook’s $38 IPO was “priced for perfection” and that it didn’t account for the risks it should have. He said that it “wasn’t surprising” that the Facebook stock is now “coming back to earth.” The expert told the Wall Street Journal that “Facebook will perpetually be in an ‘arms race’ with Google and others,” which meant that it would have to pick up companies like Instragram in order to continue to succeed.
The Guardian reports that Sam Hamadeh, CEO of PrivCo, also used that “priced for perfection” phrase last week to describe Facebook, saying that it would be very hard for them to live up to that.
Alan Patrick of Broadsight described the Facebook hype as being like a bubble, The Guardian says. Although he wrongly predicted that the Facebook stock price would rise on the IPO’s first day of trading, claiming that “There are always ‘greater fools’ prepared to buy at a higher price,” Patrick did say that he thought Facebook would have a tough time at that valuation of meeting performance targets.
Max Wolff, a GreenCrest Capital analyst, may have summed it up the best when he suggested that Facebook was more of a “spectacle, a media event and a cultural moment” than an IPO. But this also makes one wonder why the cautionary and realistic voices were drowned out amid all the Facebook hype last week. Not to mention all the alleged shenanigans with the underwriters.
It looks like those who already owned Facebook private stock will come out smelling like a rose. The rest of the investors? Not so much.
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Lisa Swan is a Feature Writer for the Compliance Exchange and the Wall Street Job Report. She is also a columnist for The Faster Times and a blogger for Subway Squawkers. Her work has also appeared in the New York Daily News, Yahoo Sports, Huffington Post and the books Graphical Player 2011 and Graphical Player 2010.