Facebook came public some time ago, for those of you unaware of the results, they were completely catastrophic for those who purchased the stock. Many of the retail investors and money managers saw potential in this iconic name, and many still do. It turns out the pop in the stock many expected never occurred, last time I checked Facebook stock has not even returned to its IPO price of $38. Those that initially hated on the metrics (everyone on twitter) of this new technology company have been thoroughly vindicated. With the stock losing almost half of its value over the past months, the dynamics of the Facebook situation have changed. The lockup date sits on the horizon. The wonderful thing about financial markets is that the correlations everyone lives by change over night, in turn making the negative expectations of the lockup date possibly not so negative.
I think the strongest case for the Facebook lockup being overrated lies with the current price point of the stock. Initially many bought Facebook for the story rather than the metrics. Obviously this was a rich stock and still is so. Today, the story is still as tempting with metrics that are significantly better. Facebook is now leaps and bounds cheaper but still encompasses the same great story of growth and potential earnings. As we have seen with iconic companies like Apple, a little vision and revolutionary idea can make investors a mint. Many investors bought Facebook for the long-term, now they can buy Facebook during the sale of a lifetime. Initially when the company went public the investing community believed that Facebook would blow through $38 and never see it again and everyone must be in . That obviously did not happen. Many institutions and funds alike still see potential with the story, and see a $20 price point as a steal. The price of the stock says everything about the company, for those that want in it looks cheap, for those that want out it is to cheap as well.
What bothers me when I hear about lockup dates, is not the negativity that surrounds them, rather the lack of analysis that investors put forth when it comes to that significant date. We all say the catastrophic repercussions of the lockup when it came to both Fusion-io and Zynga. Those are mere examples, the list goes on and on, but the fact remains that those companies were not on the same playing field as Facebook. These pros analyzing Facebook fail to realize the sheer net worth many have in Facebook. Not only that, but the growth and potential those same individuals see in the company. Why do these individuals believe in the company? They have been involved since the beginning or prior to the IPO date, they have seen the growth, and they see the potential. These same folks have also had a million opportunities to walk away. Let me put it in lamen’s terms, if your investment property lost half its value, would you sell or wait for prices to stabilize? We have seen Facebook over the course of a few months, many of these individuals have been involved for years. Obviously their time horizon is different than those who thought they were going to flip Facebook on the first day and make a killing.
One of the biggest questions many investors are asking themselves, is are the big players going to come out and pay? The big guys are coming and buying at the discount of a lifetime. We have seen Facebook fall from grace bringing all of the social media tyrants with it. We have also seen many institutions lose their lunch and other institutions not even play with the IPO of the decade. Their is still money out to play the social media game. People not in the game do want in, because the story is not only captivating but has the potential to monetize the mobile market to death. Last time I checked almost every mobile device has Facebook on it. All the current Facebook investors knew that the lockup was coming, many are riding out the storm, and that is why the dramatic selling prior to the lockup has not occurred.
For a multitude of reasons I see many investors not selling out when the lockup date comes around. Many of these investors are true investors and are in it for the long haul. They also see the potential of this giant. Though it may take some time for Facebook to work out its kinks, it will. My fear is that the Facebook short seems like the easy trade coming into the lockup. I have learned the hard way that the easy trade is never the right one. When everyone thinks they know the right move in the market, it is usually not the right move. When everyone from your barber to your mother thinks the stock will double on the first day of trading, it wont. The harder trade is always the right one.
Photo by Casey Serin