August 02, 2012

More Pressure On Facebook

Facebook shares are falling faster than panties on prom night.

They started life at $38 just a few weeks ago and, as I write this, are selling at a little over $20. A lesser man than I might remind you, for the umpteenth time, that he predicted this would happen.

While I take no pleasure in seeing innocent dumb-shits lose stacks of money in this contemptible hustle, I have to admit that I do take a certain pleasure in seeing social media con artists and their credulous disciples getting the shaft.

It seems to me, however, that Facebook's problems are just beginning. There are two reasons for this.

The first is qualitative. Before the IPO debacle, it was taken as an article of faith among the great marketing lemmingocracy that social media was magic. They couldn't exactly explain why -- other than nonsense syllables like "engagement" and "conversations" -- but they knew they had to do it because everyone else was doing it. As I've said many times, there's no bigger sucker than a gullible marketer convinced he's missing a trend.

But now it's different. A con game falls apart very quickly when doubts start creeping in. And the Great Social-Media-Marketing-Miracle con has been severely undermined by the terrible performance of so many of the players recently.

The second big problem is quantitative. It's the old supply and demand imbalance. As I said in my post of June 5th, Facebook is going to be in some real deep snow as "locked-up" shares (shares that early owners are forbidden to sell by law) become unlocked.

According to The Wall Street Journal, about 2 billion new shares of Facebook will become "unlocked" and available for sale before the end of this year. To give you an idea of how that will affect the supply-demand relationship, there are currently only about 400 million shares available for trading. In other words, the potential number of tradeable Facebook shares will sextuple.

The best case scenario for Facebook is that early owners, hoping for an upturn at some point, will hold on to their shares. But if early owners start selling off their shares when they become unlocked, there could be a pretty nasty massacre.

There's only thing worth knowing about economics -- when big supply meets small demand, it means low, low factory-direct prices.


Chris Seiger said...

Let's see if the stupidity is compounded. If you own a billion shares of Facebook that are worth half what they used to be, the surefire way to make them worth even less is to sell the lot. They're going to be paper billionaires held hostage by their so-called wealth because as soon as they try to liquidate it, the value of it all will tumble.

Wall Street is a harsh harsh mistress. Ask my IRA how I know.

DonMedia said...

As I said on their first day of less than stellar trading, "I hope all the Bentley, Lambo and Aston dealers in Silicon Valley got their money in cash, cause there are fixing to be a bunch of broke dot bomb kids."

Jim said...

I  read an article by a guessologist who reckoned they could slide to $7 and that would be a clearer reflection of their worth.  

Joseph Nielsen said...

Hmm, would be interesting to see the revised numbers on how much Instragram was really bought for.  I just recently deactivated my facebook account.  FB's biggest killer to future revenues: Moms who think it's okay to comment on every single post.