Dotcom mania is passé,suggests the Facebook IPO
The obvious takeaway from the Facebook debacle is never plan your wedding to go with your IPO like Mark Zuckerberg did. The others are no longer obvious since attention is focused on multi-level bungling by Nasdaq and possibly selective disclosure by underwriters to the issue,inviting lawsuits and regulatory scrutiny. Ironically,this confusion saved the stock from falling below the IPO price on the very first day of trading. However,analysts are losing sight of the original problem with the IPO massive overpricing. The value of a company rests on the bedrock of revenues. Facebooks revenue model depends on advertising but its returns are two orders of magnitude lower than those of Google. There was no tangible basis for the $104 billion valuation with which Facebook went to market.
Secondly,Facebook is being faulted for applying the traditional IPO model to IT stock,in which banks and financial institutions come between the company and the buyer and decide who can buy and at what price. In contrast,Googles 2004 IPO had innovated the use of direct online auctions that were designed by Morgan Stanley which,incidentally,has helped to botch Facebooks IPO.
But ironically,investors have used traditional market wisdom to see through the cloud of fizz created around the issue. Facebook could have kicked off the next dotcom bubble but clearly,investors learned the hard way in the meltdown of the late Nineties. That bubble had been blown by seducing investors into ignoring the balance sheet to gamble on unquantifiable assets like ideas and people. The big takeaway of the Facebook IPO is that it would probably be impossible to get investors to do that again. The first dotcom bubble was the last.