Wednesday, August 08, 2012

Aren't You Glad You Were Smart Enough

It would be all too easy to wager that Facebook’s market meltdown could be coming to an end. After all, the social network led by Mark Zuckerberg in just a couple of months incinerated as much as $50 billion of shareholders’ wealth. To put that in context, even after a recent rebound, Facebook since its Nasdaq debut in May has lost value nearly equal to the current market capitalizations of Yahoo, AOL, Zynga, Yelp, Pandora, OpenTable, Groupon, LinkedIn and Angie’s List combined, plus that of the bulk of the publicly traded newspaper industry.

As shocking as this utter failure may come to the nearly 1 billion faithful Facebook users around the world, it’s no surprise at all to anyone who read the initial public offering prospectus. Worse still, all the red flags that were flying when the company debuted – overpriced shares, shoddy corporate governance, huge challenges to the core business and a damaged brand – remain at full mast today. In this respect, Facebook looks like a proverbial example of what’s known on Wall Street as a falling knife – that is, one that can cost investors their fingers if they try to catch.


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