At the beginning of the week, Bloomberg’s website featured two stories.
One noted the continuing fall of Facebook shares since the company’s initial public offering, when the investing public snapped up 421 million shares of the 8-year-old firm at $38 a share. At that price, the company was valued at 107 times trailing earnings, a richer valuation than 498 of the 500 companies in the S&P 500.
Carlos Kirinel, an analyst at Sanford C. Bernstein & Co, said that “It is difficult to argue for owning the stock today.” Bernstein predicted that the stock would “underperform” the market, and set a target of $25 per share. At Wednesday’s close, Facebook was quoted at $26.81.
So who bought the stock, anyway? Not institutional investors — most of them thought that JPMorgan, the lead underwriter, had substantially overpriced the deal. But hundreds of thousands of individual investors jumped aboard, thinking that they might otherwise miss the next Microsoft, the next Google, the next Home Depot.
As a journalist, my investments are more prosaic — we’re talking a new set of tires for the ancient SUV. But back in 1986, when I actually had a few bucks to play with, my stockbroker pitched an IPO.
“It’s a great company,” he said. “It has proprietary software, an exclusive deal with IBM, and it’ll have a really strong balance sheet after the deal. We should get a nice pop.”
“Wait a minute, Dennis,” I said. “Is this a software company? Software companies never make any money — they don’t have any products, just a lot of geeks writing code that other geeks make obsolete in a few months. No thanks!”
Yeah, it was Microsoft, and yeah, if I’d invested $10K in the IPO and held it for 20 years I’d be a multi-millionaire. But let’s get real — had I bought it, I would have sold it within months, and congratulated myself for making a few thousand bucks on the deal.
Bloomberg’s other story concerned the “Azzam Project,” an almost-finished yacht under construction at a German shipyard. At 600 feet overall, it’ll be the world’s largest yacht, easily eclipsing the 500-foot Eclipse, owned by Russian oligarch Roman Abramovich. The owner’s name is as yet unknown, but he (or she!) will be the biggest dog in an ocean full of big dogs. According to superyacht.com, your yacht will have to be at least 247 feet overall to rank even in the top 100.
So what, if anything, do those two stories mean?
My staunchly Republican geezer homies would know.
“Too bad about Microsoft, John,” they might say, “but if you’re dumb enough to invest in an overhyped stock like Facebook, don’t be surprised if it goes down. The underwriters represent Mark Zuckerberg, not you — and they priced the stock at what they thought the market would bear. And as for the mega-yacht — why not? The owner has billions to spend, and he’s creating jobs for thousands of people. Hope he has fun with it! And by the way, vote for Mitt.”
My passionate Democratic friends might disagree.
“John, don’t you realize that the Facebook deal is just another case of the 1 percent screwing the 99 percent?” they’d point out. “JPMorgan and Facebook insiders made a ton of money, and everyone else got suckered. And that yacht? Obscene, unsustainable, exploitive consumption — globalization at its worst! And by the way, vote for Barack.”
Well, I dunno. Let’s consider Wal-Mart, one of the great American success stories — and one with two very different narratives.
Sam Walton revolutionized retailing in America. Did he do it by hiring thrifty managers, by cutting out layers of middlemen, and by organizing transportation more efficiently than his competitors? Or did he succeed by underpaying his employees and destroying hundreds of thousands of small businesses? Is Wal-Mart the quintessential American company, or just the retail branch of China, Inc.?
Yes to all four questions. Successful companies and individuals figure out what they have to do, and do it. Disruptive technologies, whether as prosaic as Wal-Mart’s focused efficiency or as exotic as Google’s search algorithms, bring Schumpeter moments to their competitors. The Wal-Marts of the world look upon their rivals as coyotes look upon housecats — as prey.
So I guess I’ll have to side with the geezers on this one. Not that I’m immune to class envy — sorry as I am that so many folks lost money on Facebook, it’s nice to see Mark Zuckerberg so publicly embarrassed. And maybe the stock’s a buy at $25, just as Apple was a great deal on June 3, 2002, when it closed at $8.86 (adjusted for splits and dividends).
Price on June 1, 2012: $560.99.
I’m voting for … Steve Jobs.