August 31 - Facebook Face Plant Continues

August 31 Update  -  The day isn't over and after having one early investor sell millions of shares last week, and the "pundits" saying that revenues will slow down even more, the stock has reached $18.11 and a valuation of under $40 B. 

What do the artist Prince and CEO founder Zuckerberg have in common?  Both are associated with the number 1999.  In Zuckerberg’s  case, only briefly, as on Thursday, Facebook stocks continued to plummet, dropping as low as 19.82, before closing at $20.04. Not good for investors who jumped on board on the day of the IPO. 

Should the stock keep dropping, there will be fewer sales of little red corvettes, or Teslas, in Silicon Valley in mid August, when the lock-up ends and  employees can start selling up to 268 million of the 1.7 billion shares they have.

   

Facebook’s market cap (valuation) as of end of day Thursday was  $37.6  billion.  This   means that those who were projecting a  $100 billion valuation have to remain in hiding.  The person still coming out good in this is Kellogg School of Management assistant  professor  Anup Srivastava,  (accounting information      management). Srivastava;s   valuation model  arrived at  a base case valuation  of $25 billion.  http://kensek.blogspot.com/2012/02/is-facebook-really-worth-100-billion-in.html
 

Meanwhile, Facebook reported that as many as 83 million  (about 8.7%) of its accounts may be illegitimate. The includes duplicate accounts, misclassified accounts, and accounts deemed “undesirable”.  This 83 million figure is greater than the number of people who use Google on a daily basis.   
 http://www.bbc.co.uk/news/technology-19093078 .

So August isn’t starting out well for the firm. There’s the above and some of the team is starting to depart.  Ethan Beard, Facebook's director of platform partnerships, and Katie Mitic, the company's director of partnership marketing,  are both leaving the company.

To view Facebook’s quarterly financials, and learn more about their risk factors and issues they’ve identified, go to their updated  10-Q. This document is only about 60 pages.

http://www.sec.gov/Archives/edgar/data/1326801/000119312512325997/d371464d10q.htm

What is Facebook worth Revisited - Latest Earnings Report - Employee Stock Lock-Up Expiring Shortly

Facebook released their financial results on Thursday.  Facebook’s  growth figures in their first quarter   as a public company following their IPO would have been impressive for most companies.  Nonetheless,    

Facebook stock took ­­ a  face plant following   the earnings release.  Below is a second quarter summary of their financial results. On Friday, Facebook closed at $23.71.  This gives them a market capitalization of $44.5 billion.  Click to enlarge the table.  CEO Zuckerberg may stay under the radar for the next several weeks.  

 

 The $95 to $100 billion  IPO pundits are taking a low profile.  Probably focusing on their tweeting.

In May, GreenCrest Capital’s Max Wolf felt that Facebook's  financial numbers suggested a valuation of $60 billion.  This is 37%   less than the $96 billion Facebook was thinking of.  His figure as of July 27, is off by only $15 billion, on the high side. 

Also in May,  Anup Srivastava, an assistant professor of accounting information and management, Kellogg School of Management, ran a valuation model and arrived at  a base case valuation  of $25 billion.  “This is based on the firm’s revenues reaching approximately $21 billion in ten years’ time from approximately $4 billion today, and the firm maintaining a high return on assets of approximately 20 percent.”   His model, as of July 27, is off by only $19 billion, on the low side.  The last link at the bottom of this blog leads to Srivastava’s original article in “Expertly Wrapped” an online publication by Kellogg faculty. This also provides  a link to his valuation model.  Discounted cash flow analyses can be a good thing!

As an amusing aside, average the two figures above by these individuals - $44.8 billion, off by only $0.3 billion !  A sample of two smartest guys in the room probably doesn’t qualify for wisdom of crowds status. 

Facebook will free up nearly 1.7 billion shares -  four times the number now trading,  beginning in August.  Provisions   currently barring  employees from selling their holdings will start.  Unfortunately for the employees, if they execute these immediately, they are taxed as regular income. 

Shares of online coupon purveyor Groupon Inc. declined 8.9% when its lock-up expired on June 1.  The stock dropped nearly 20% that week. Likewise, shares of online gaming company Zynga Inc. fell 7.9% when its lock-up expired on May 29. The stock price ended up falling    9.1% for the week.  Look for some sort of dip as Facebook employees start selling some of their stock,  and people continue accessing Facebook on their mobiles. No revenue for Facebook when they do this.

Real estate agents in Palo Alto,  Atherton, and Menlo Park (where Facebook is headquartered), are probably looking at Facebook’s stock price a lot more than mortgage lending rates. 

http://www.latimes.com/business/la-fi-facebook-shares-20120728,0,1045145.story

http://kensek.blogspot.com/2012/05/is-facebook-really-worth-96-billion-in.html

 

http://kensek.blogspot.com/2012/02/is-facebook-really-worth-100-billion-in.html

 

July 18 - Palo Alto Networks To Go Public Friday

July 18 addendum -  Palo Alto now expects to charge $38 to $40 a share in its public debut, up from the previously stated range of $34 to $37, according to an updated regulatory filing uploaded Tuesday evening. They expect  to establish a final price for the shares Thursday night and debut in public trading Friday.  A positive way to look at this.  The offering may be way oversubscribed. A negative way. Isn't this what Facebook did? Didn't the Facebook investors  get burned?  Proceeds may be up to $250 million.  A link to the most current S-1 is below.

July 14 addendum -  Venture capital firms Greylock Partners and Sequoia Capital will each hold 20.7% of the company after the IPO (Initial Public Offering), and Globespan Capital Partners will hold 7.4%.  They'll be listing as PANW.  The offering is scheduled to price on July 19, according to Bloomberg.

  They may try to raise as much as $229 million.  The initial anticipated price range, $34 to $37. This may help start up IPO activity again.   The IPO will take place on the NYSE. At the top of this pricing, they will  have a market capitalization of $2.5 billion. 

Firms leading the Palo Alto Networks IPO offering – primary lead is Morgan Stanley.  Others include Goldman Sachs, Citigroup Global Markets, Credit Suisse Securities, Barclays Capital, UBS Securities, and Raymond James. Palo Alto Networks filed their S-1 in April, reporting a loss of $12.5 million for the fiscal year ended July 31.  This is compared with a $21.1 million loss a year earlier.  Revenue had more than doubled to $118.6 million.  In a June filing, Palo Alto Networks  reported that third quarter sales for the three months ended in April rebounded to $65.7 million, for a 16% increase.  

To view the S-1, go to the link below.  The S-1 is about 160 pages of light reading. The S-1 is the amended July 17 version.
 
http://www.sec.gov/Archives/edgar/data/1327567/000119312512304885/d318373ds1a.htm

When Palo Alto Networks filed on April 6,  the  valuation of the IPO was for $175 million.  Unlike the Facebook IPO that had Zuckerberg owning roughly a gazillion shares and a major portion of the company, Palo Alto Networks founder   and Chief Technology Officer Nir Zuk owns 6.2% of  the Palo Alto Network shares. 

Palo Alto Networks and Check Point Software Technologies are the only two companies in the Leader portion 2011 Gartner Magic Quadrant for Enterprise Firewalls.

The patent infringement lawsuit file by Juniper against Palo Alto Networks late last year is still going on.

After the Facebook implosion, look for this to be  a reasonably priced IPO, with a reasonable pop.  Don’t put your money on an NYSE meltdown like the one Nasdaq had with Facebook.  Perhaps it was all the stress over Zuckerberg’s wedding that occurred shortly after the IPO.

Meanwhile, on the chest thumping front,    “Is Check Point's firewall really faster and cheaper?  Can they really see all apps on all ports?  Or even identify unknown traffic?”  Go to http://www.paloaltonetworks.com/cam/techbusters/  to view Palo Alto Networks’ video take on the situation. 

A Bit of a Red Face under the Hoodie for Facebook

Facebook has to have a bit of a red face, as well as some of  the investment firms they worked with, as  Facebook closed opening day on NASDAQ  at $38.23.  Meaning no first day pop.  Well, a  0.61% pop.  Part of this may have had to do with the market as a whole, as NASDAQ ended up down 1.24%.  Others wrote that     initial trading glitches at the beginning of the day played a part. Facebook is trading under FB.  No confusion with Bulgaria Air, flight code FB, is expected.

The lackluster opening, the highest the stock went was about $43, means individual investors will be able to buy  Facebook stock at the same price shares were offered to privileged investors, wrote USA Today.  Investors who piled in the first day lost as much as 15% in just a few hours.Facebook ended the day with a $104 billion valuation. And  with $16.1 billion in cash. 

The company  never fell below $38 during the day.It touched $38, a lot in the afternoon.  The price likely would have dipped below $38 if the IPO's financial underwriters hadn't moved to help prop it up, said Sam Hamadeh, CEO of the New York analyst firm PrivCo.

CBS News  commented that while the deal was the second largest in U.S. history, after GM,  the first day of trading was more “whimper than bang”.  566 million shares were traded by the end of the day. 

However, what about that lack of pop?  As written about in a previous blog, there is a whole psychology to first day pops, where “the smartest guys in the room” would like to see a pop for the individual investors.  But not too large a pop, because that would signify leaving money on the table (reduces cash available for investments and purchases of hoodies). The   below contains a link to a Wall Street Journal article about this.

Quiz question.  What Bay Area firm had an 89% opening day pop in March?  Annie’s Inc., the maker of organic and natural foods such as bunny-shaped crackers did this on the NYSE.  They trade as BNNY. 

http://kensek.blogspot.com/2012/03/89-first-day-pop-for-firm-going-ipo-on.html

 

Now that they’re public, Facebook will have to be a lot more “visible” to the investment community, and file all those quarterly reports on earnings.  The tradeoff firms make in order to get investment capital with an Initial Public Offering (IPO)!

It could get a bit interesting in November.  Facebook granted Restricted Stock Units to employees (RSU's) to allow them to participate in the growth of the company.  The    RSU's are not counted as shares under securities laws.  So Facebook avoided having to file for an IPO when it hit 500 shareholders.  The downside is that  RSU’s don’t qualify for taxation at capital gains rates (around 15%).  Facebook employees will be looking at a combined state and federal tax rate of 45% on their RSUs.  

Meanwhile, a number of Facebook employees may be leaving work a little early on Friday.  There was an all nighter  event at  Menlo Park  Facebook headquarters, prior to the NASDAQ opening bell  rung by CEO Mark Zuckerberg. Friday morning.