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Kass: Egg on Your Facebook

Tickers in this article: FB AOL GOOG AAPL TWX GRPN
This column originally appeared on Real Money Pro at 7:41 a.m. EDT on July 27.

NEW YORK ( Real Money ) --

" Surprise No. 18: Facebook's IPO fizzles. The new offering is priced at a $70 billion equity capitalization but opens flat and breaks issue price in the first day of trading."

-- Doug Kass (Dec. 30, 2011)

Back in late-December 2011, I cautioned in my 2012 surprise list that Facebook's (FB) IPO would quickly head for a fall. I again cautioned about the company's share price outlook in an appearance on "Fast Money" two months ago, during the week of the IPO.

Last night Facebook reported disappointing metrics in its first earnings release since becoming a public entity -- its shares dropped by another 10%.

There has been a lot of discussion over the past few months regarding who is to blame for the awful IPO.

Was it the investment bankers (who reduced their sales and profit estimates a few days before the offering) or the Nasdaq (software glitch)?

How about blaming the buyers?

I do.

Frankly, the buyers (both institutional and retail) were greedy, as they thought this was a freebie (a chance for instant profits).

How many buyers actually read the company's prospectus? I did, and that reading confirmed that my surprise would shortly be realized.

I also blame the business media, including CNBC and Bloomberg; they fueled the fire with nonstop hype over the past year.

Shame on all of them.

Revisiting my view on Facebook on "Fast Money" -- on May 22, I spoke about Facebook with Melissa Lee and the gang,

Let's go straight to the tape .

"This is a historic moment in which new media has truly come of age."

-- Steve Case, January 2000

"The Internet had begun to create unprecedented and instantaneous access to every form of media and to unleash immense possibilities for economic growth, human understanding and creative expression."

-- Gerald Levin, January 2000

In that appearance I likened the publicity and hype that led up to the Facebook IPO to the hoopla surrounding the merger of AOL (AOL) and Time Warner (TWX) 12 years ago. When that deal was announced, AOL's frothy price made it worth twice as much as Time Warner, even though AOL's cash flow was less than half that of Time Warner.

Back then, similar to now, superlatives had been bandied about, but little substantive analysis was delivered.

Both AOL and Facebook have been characterized as gateways to the Internet. But there were problems with the AOL-Time Warner merger (the largest in history) before the ink dried on the transaction. The same could be true for Facebook's IPO.

Following the merger, AOL's shares commenced a steady, multiyear price decline from the high $70s to nearly $10 a share.