I was reading with some interest the various commentary about the Facebook IPO float and subsequent debacle faced by some investors. While I am not personally impacted by it, it does remind me of some common mistakes made in projects. One may call it being wise after the effect, I think of it as lessons learned.
We human beings like to think ourselves as intelligent beings. That however, does not preclude ourselves from making emotional decisions. In fact we are prone to making purchasing decisions at an emotional level. Have you ever gone to the hardware store to buy some screws, only to return home with the power tool that was on sale? Investors did get sucked in. What was desirable and cool became something that they could not live without. Facebook and its bankers took full advantage of that hype.
Lesson 1: When emotion soars, thinking suffers.
Playing ostrich never really works well . A quarter of all internet traffic today is from the mobile devices. In the next twelve to eighteen months this figure is forecast to be nearly three quarters of all traffic. Earlier this month Facebook warned they have no meaningful revenue stream from mobile. Combination of the two should have rung alarm bells on what was the largest tech public offering. It appears not many made the connection.
Lesson 2: Never assume, check your numbers.
IPO lodgment is a murky process. Everyone is looking to squeeze the maximum out of this. The aim is to raise as much capital as possible. Before you and I get a chance to get in the action, the merchant banks routinely pitch to the institutional investors to buy in. It appears Morgan Stanley not only did this, but also were more forthcoming to them regarding Facebook’s earning potential. This is now facing SEC and Senate Banking committee investigations.
Lesson 3: Making decisions with incomplete information is dangerous.
Asking price of US$38 for the Facebook IPO valued the company at US$100b. That is staggeringly four times as much as Google, which has an order of magnitude higher earnings. The ratio of price to earnings is about 200:1, many times more than both Google and Apple. Usual rate of price to earnings for listed companies is around 14 or 15:1. This information was definitely available for anyone had they wanted to analyze it.
Lesson 4: Lack of analysis compromises quality of decision making
What I wrote in this article was a quick summary of what I read. I did not necessarily know all of it, neither do I claim this to be a comprehensive analysis of what transpired. The resemblance of some of this to bad practices in project management is uncanny. Let us learn from other’s mistakes, without repeating it ourselves. It may be that people that bought into Facebook today will really make hay. If so, I will hail them as visionary 🙂