"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
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.
I started the conversation with the notion that I was not surprised by the price break in Facebook's shares -- indeed, it was one of my surprises for 2012 -- and I questioned the analyst interviewed in the prior segment, who thought there was only $1 of risk in Facebook's share price (which is insanity, a mathematical improbability and a perfect example why many investors disregard Wall Street research).
Superlatives, not substance, provided the backdrop of the discussion leading up to the Facebook IPO, as it was with America Online 13 years ago.
A rich valuation, fundamental issues plus a continuing and discouraging Greek situation served to provide a poor backdrop for the Friday morning IPO.
To me, Facebook faces philosophical, business, operational, financial and valuation headwinds.
- Philosophy: The company is run by a 28-year-old who favors a social mission above profits.