Meet Facebook’s Fall Guy

I’ve only been skimming the news about Facebook’s IPO over the last 24 hours, but two or three times now I’ve read that Facebook’s CFO David Ebersman “decided” to increase the size of the offering at the last minute. Example (and, shame on the WSJ for just publishing what was fed to them).

This is the fall guy. This is the guy that I suspect Facebook is throwing to the wolves. Because someone has to be thrown to the wolves.

Some would say this is exactly what CFOs are for. The wolves.

Obviously Ebersman didn’t make the decision in a vacuum. If he did then Zuckerberg and the board are really to blame for not paying attention (something none of the stories mention). This was a joint decision by Facebook management and Morgan Stanley.

The whole Morgan Stanley mess isn’t over yet, either. There’s another very big part of the story that I’ve heard whispered at TC Disrupt that hasn’t broken yet. I may track that down tomorrow after the conference if it’s still unpublished.

I refer back to my Facebook IPO Spin article, which in hindsight looks 100% right. I wouldn’t be surprised to see Reuters reporters get subpoenaed at some point as lawmakers try to find out more about their sources.

All this aside, I still think Facebook has a certain destiny to fulfill. They completely blew their IPO from a psychology standpoint. But I like Facebook as a stock. I bought some shares on Monday below the IPO price. That’s both a disclosure and a statement of my belief that they’ll be growing significantly in the future. CrunchFund also owns some shares in Facebook from an acquisition that took place recently.

27 thoughts on “Meet Facebook’s Fall Guy

  1. Why does the media run with the fall guy scenario. What is their agenda?

  2. Glenn Kelman says:

    Awesome post.

    The issue to me is revenue growth not size of issuance or post-IPO stock fluctuations. Do you ever wonder how large a display advertising business can be, and when Facebook will develop other businesses? I am not questioning the health of the social network or its ultimate value, just the limits of Facebook’s current revenue model. When I think of the largest display-advertising business in the world, I think of Yahoo, which today has more revenue than Facebook, but one eighth of what Google has. Comparing Yahoo’s stock price to Facebook’s isn’t fair since Yahoo is collapsing rather than growing, but it helps me think about how much revenue a display advertising business can generate.

  3. Rdx says:

    Can you say where you think the revenue growth will come from.. desktop usage in developed markets is in decline, desktop ads performance is in decline (GM fiasco), mobile monetization is extremely hard, no ad supported app has done well in app store till date.

    Meanwhile, competition from google is relentless, which means the amount of ads that can be shown are very limited. Significant time of fb users is also being spent on sites like Pinterest.

  4. Looks like $30 will be the bottom for a while for FB. Buying some at this level seems isn’t a horrible idea, but remember to sell before the lockup expiration in October/November. About that same time the economy will be contracting anyway making a flight to safety seem smart.

  5. Jason Carr says:

    You had me right up to “I bought some shares on Monday below the IPO price.” Damn Mr. Arrington…you should’ve waited a few months. You could’ve easily gotten this at $10/share or less…

  6. o.a shade says:

    I wrote a post grilling Facebook because of their IPO debacle, but I totally agree with this post particularly the ending. I think the company has a bright future; they just have to get the revenue up. They have the page views, the users and a good retention rate with their DNA spread all over the web.
    It’s all about product development and getting the money in now.

  7. wei-min chu says:

    I think Facebook has a long way to fall.

    We used to send picture postcards by US mail, now we post them on Facebook. And the USPS covers its costs with junk mail ads while Facebook covers its costs with junk ads from the same advertisers.

    I don’t see Facebook as a profitable company in the long run, see

  8. Rey says:

    Each of FB’s 900 million users ‘believe’ in the company to some degree. But the facts are hard to ignore, the company was overpriced and this was supported through misstatements in the S-1. Morgan Stanley’s own analyst slashed the FB revenue forecast for the coming quarter and year, but the information wasn’t made available to everyone in the IPO syndicate.

    There were already 2 lawsuits filed this morning and host of others on the way. FB will not hit the revenue projections offered pre-IPO. Severa large institutional investors are building massive short positions in FB — looking for a reverse IPO ‘pop’ of sorts. This is going to get much, much uglier before it gets better.

  9. its so weird that the internet is so wide, yet a the decision and news level its so much more concentrated than real life.

  10. pemullen says:

    If Zuck truly controls 57% of the voting shares, just where does the buck stop? At the CFO’s desk? I think not.

  11. Down Guy says:


    • Ryan says:

      Yes, none of us can believe your investment didn’t generate overnight returns. We’re so sad for you and wish you all the best in your imaginary lawsuit.

  12. Usually no one is thrown to the wolves. The wolves are hungry.

    But you know why no one was thrown before? Because when wolves eat someone, it just makes us more ravenous. We want more, higher up. Zuckerberg starts looking tasty….

  13. Mike says:

    In the end it won’t matter what FB did in its IPO. No one talks about what kind of IPO MSFT did nowadays. It doesn’t matter. How HP did in its IPO? Ancient history.

    Either FB will make it or they won’t. If they make it, then their current stock price will really be way more important than how FB did at IPO. If they don’t make it, then it will matter even less.

    In retrospect, FB, its underwriters, and even NASDAQ made major mistakes in this IPO. The biggest two IMO is the amount of shares, and the fact that so many insiders sold stock. I feel for the people that lost money in this one, but I strongly suspect that they will make much if not all of it back, and likely within 2-3 quarters.

  14. Mike DeWolfe says:

    I think the price drop comes from the stock being so wildly overvalued to start with. In the long term, its earning potential per user will fall even more. The wealthy users are already a part of Facebook. There are thousands of wealthier people destined to eventually join Facebook, but there are also tens of millions of poorer people who will join Facebook. When the stock price was pegged, I asked, “is every Facebook user worth $125 in revenue generation?” I am confident that the answer is, “no.” and because of that, Facebook won’t be practical until its stock price reflects its ability to generate revenue.
    Anyone who pushed the stock at it’s IPO valuation was crazy.

  15. Hunter says:

    As a CFO, if your responsibility is to maximize proceeds to your company through an IPO, which any company should want to do, then this guy did an excellent job. He sold FB at the highest possible valuation they could get. What profit/loss retail investors take is not FB’s concern at all.

  16. Doug T says:

    Agree the question is how big can a display ad business be. See this one from Michael Wolff.

    “Absent an earth-shaking idea, Facebook will look forward to slowing or declining growth in a tapped-out market, and ever-falling ad rates, both on the Web and (especially) in mobile. Facebook isn’t Google; it’s Yahoo or AOL.”

  17. Belinda W says:

    Here’s another take on the topic – “for people making the initial sale, an anti-pop is ideal. It means no money was left on the table.” :

  18. I agree that the long term value of Facebook has yet to be proven either way, but the IPO stock price being launched too high or not, is almost an irrelevance, other than to investors today in this quarter and the SEC of course. The real question is this: Will Facebook Hit 2 Billion Users And Beyond?

  19. trendzoo says:

    On LinkedIn it says he graduated from Brown in 1991 and was CFO of Genetech by 1994. How is that possible? Even if Genetech was a super small company in 1994 it seems odd they’d hire a 25 year old to be CFO.

  20. Luke P says:

    Nobody forced anybody to buy Facebook stock. He is NOT the fall guy. Anybody who feels burned needs to look into the mirror – did you read all the IPO docs…did you make an informed decision…are you willing to hold the stock for a year if you think you made the right guess…

    Stock price is perception – not reality of future earnings.

  21. zato says:

    I wouldn’t believe anything the establishment media is saying about the Facebook IPO. Especially Reuters, and Bloomberg. I think Facebook has made an enemy of some powerful people, and is marked for destruction, or a demonstration of who they need to pay attention to.

  22. kirse says:

    Totally Agree. 🙂

  23. edwin permana says:

    I think ms and gs shorting fb during ipo pretending that they are hedging
    their position. I think there is an intentional motive to overvalue the FB IPO price
    at 38 instead of 24, so the IPO’s flops instead of double on first day, the bankers
    and the hedgies need to make money by shorting FB then going long on it

    look at this:

    and there are more longer terms PUTS look at site like seekingalpha

  24. Poul says:

    You had me right up to “I bought some shares on Monday below the IPO price.” Damn Mr. Arrington…you should’ve waited a few months. You could’ve easily gotten this at $10/share or less…

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