Last month I released an update to our Facebook IPO analysis (subscribers may download it here FaceBook IPO & Valuation Note Update). In its caveats section, I made pains to make very clear that one of the biggest threats to Facebook investors actually emanates from within, to wit:
Those who do not subscribe to BoomBustBlog yet purchased shares in the private (or soon to be public) market may be in for a rather disrespectfully rude awakening, as illu:strated in this piece from the NY Times - Face Time With Facebook CEO Stirs Concerns on Wall Street:
SAN FRANCISCO (Reuters) - Mark Zuckerberg wants at least $5 billion from Wall Street investors, but those investors will not be getting much face time in return.
The Facebook co-founder and CEO made that clear when he skipped the social networking company's first major briefing for analysts and bankers last week. The meeting was the first of many that will take place in the run-up to an IPO that could value the company at close to $100 billion.
Zuckerberg's dismissive approach is hardly unique among elite Silicon Valley companies, but it could become an issue with investors because of the enormous control he exerts over Facebook via special shares.
"We don't think that he should be hiding from the investors," said Carin Zelenko, the director of the capital strategies department for the International Brotherhood of Teamsters, whose pension and benefit funds have more than $100 billion invested in the capital markets.
Pissing off a $100 billion investor is an absolutely horrible way to kick off life as a public company. Suppose, just suppose, said investor becomes activist... Oh yeah, on that note...
According to Zelenko, the Teamsters will send a letter to the trustees of the various Teamster funds advising them to be wary of long-term risks associated with investing in Facebook as a result of its "anti-investor" corporate governance structure.
Maybe he should send BoomBustBlog subscriptions and custom advisory services to said teamster funds, eh? :-)
Two people who attended Facebook's March 19 meeting remarked on the young CEO's absence and privately said they expected at least a cursory appearance. One analyst asked how involved Zuckerberg would be in future. In response, the company said expectations should be set pretty low, according to one of the two who was at the meeting.
"Investors are crazy to want to get in bed with a company where the guy who controls it doesn't even pretend to care about the rest of the shareholders," said Greg Taxin of activist investment firm Spotlight Advisors, who will not buy shares. "That seems like a recipe for disaster."
And now is the time to pretend that investors prefer to consider what the best long term investment is as opposed to what the sell side peddles them???
As a private company backed by mostly venture capital, Zuckerberg enjoyed great leeway in choosing how to spend his time. But Zuckerberg will control 56.9 percent of post-IPO voting shares thanks to a dual-class stock structure and voting agreements with some early investors, and may face pressure to be more available to investors.
I think these guys are missing the most salient point. Zuckerberg IS the "investor[s]", at least from a control perspective. He just wants your capital, the actual control behind the capital is, and apparently will be for the foreseeable future, his! Will this be a good deal for the guys who part with their capital yet get no control or rights in return? Well, of course it is if Facebook goes to the moon and back in regards to growth and valuation. But will it???
For the moment, with investor enthusiasm for Facebook burning hot, the dual-class structure and Zuckerberg's lack of engagement are not likely to have a big impact on demand for the shares.
Of course Facebook enthusiasm is burning hot. The coals in the "investor" (and I put this lightly) fire are being stoked by none other than the sell side agents doing God's work, among others...
Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for this report, available for immediate download - Facebook Valuation Model 08Feb2012. The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update. It is recommended that subscribers (click here to subscribe) also review the original analyses (FB note final 01/11/2011) as well as the following free blog posts on the topic:
- Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
- Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
- Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
- The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
- Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
- The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
- The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly