If you’re reading this, there’s a good chance that you’re doing so via Facebook, and that’s super. Facebook has become about as ubiquitous as stoplights in our life. It’s something that’s, well, simply everywhere. And it went public, as we’re all aware, and it was a big flop. If, by ‘flop,’ you mean that it raised tens of billions of dollars, it just wasn’t as much as Mark Zuckerberg would have liked.
Well, Morgan Stanley has come under fire for allegedly badmouthing the offering when they were selling it to investors, and now their top technology banker is becoming the scapegoat for all of the fallout that’s come about as a result of Facebook’s disappointing debut. There’s a lot of factors that impact the share price of any company, but the most important factor is how much money it makes. That, more than anything, determines the value of the shares in the eyes of the markets. At that, Facebook simply comes in lower than could be expected, given its stratospheric valuation.
Facebook can cite as many technical glitches, shoddy bankers and ignorant investors as they like, but the bottom line is that, as a company that earns about $3.4 billion a year, valuing it at over $100 billion isn’t sustainable in markets. It’s not Morgan Stanley’s fault that the stock price has declined by about 20% since its debut. It’s the fact that the hype surrounding the IPO jacked up a price to levels that never justified the price. Such is the beauty of markets. They work far more often than they don’t. And when they do work, they do so quietly, quickly and with ruthless efficiency, much as they are now, busy at whittling away shareholder value that never exited to begin with at those unjustified prices.