Facebook (FB) reported in the aftermarket.

I didn’t say anything to you about this earning’s report because I didnt want to sway you…but you have known before the IPO what I thought of the over-the top valuation on this deal.

I was actually thinking that there was no way the investment bankers could be so dumb to bring something out at such a valuation on a company where business may have already peaked. I was thinking, maybe hoping, that maybe, just maybe, they were sandbagging and holding back numbers before going public and then produce big numbers after going public. In other words…do the Apple sandbag.

But no.

So one of the biggest IPOs in history continues to be a disaster.This is a black mark on the investment bankers. But they don’t give a crap. They got their fees. They don’t care about you, the retail investor. You’re a nobody.

I told you on my radio show that they did this throughout 1999…and they are doing it now. Hopefully, you were listening because we begged you not to touch Groupon, Facebook, Zynga, Pandora, Renren and all this other stuff they foisted upon you at ridiculous valuations.

Facebook: Let’s Start From the Beginning

Facebook’s growth…monumental.

Went from nothing to $4 billion in revenues.

Went from a few people at Harvard signing on to a billion people.

But here’s the problem.

The investment bankers on Wall Street are #@%@&. Time and time again, they have shown that they do not care about you, the retail public. They never think longer-term about reputation. It’s always about “short-term and fees.”

In 1999 they brought a bunch of crap public. You’re to blame for 50% of that because you bought it! They recognized that they were in a bubble and  anything that they would foist upon you, you would take.

They were able to bring companies public that had no revenues. Did you hear that? No revenues! And they would give it a $500 million market cap.

And guess what? Because of your buying, it would double and triple…until, of course, the curtains came down and it all went to zero.


They knew better. They brought a company public that sold you stuff on the web and lost money on purpose in order to get you to the site so that THEY COULD SELL ADVERTISING!

I could go on and on.

Fast forward to the past year, when I started to notice they were at it again…bringing companies public at ridiculous over the top prices where only one thing’s going to happen: You are going to be buried.

They bring Pandora out.

A great idea?. Personalized streaming music…like there’s no other place you can get that from.

The company does not make money. They brought it out with something like a $3 billion market cap, with $100 million in revenues.

The stock hit a high of 26 and it’s now 9.

Do I have to do Renren?

It hit a high of 20 and it’s now 3.

How about Groupon?

Accounting irregularities before they go public. It’s well known that merchants get paid back much slower than most other companies, and they are going to have to change that and that will impact them.

They still bring it public at 20, giving it a $12 billion market cap.

They hype it. It’s 31 the first day…close at 26.

It’s now 6.

They bring Zynga out like they are curing cancer.

It’s games! It’s just games. They bring it out at 10, hyped it up to 16.

It’s now 3…down 70% from IPO!

And it’s still got a $2.3 billion market cap.

So then Facebook.

Over the past four quarters, Facebook’s earnings have decelerated. Their revenues have decelerated. It is well known that people are using it less.

It’s the tiring out effect. There’s so many times that somebody’s going to go on Facebook and say, “I went to Publix and bought some lettuce and it was very green.”

I’m not saying this thing’s not going to be big. Frankly, the potential is huge.

But what did the investment bankers do?

They bring the company public with $4 billion in revenues…with a $100 billion market cap…with decelerating numbers.

So what I simply said to you was “pick your poison.”

I told you, my radio audience as well as on my tv appearances on Fox Business that  if I had to value this company and I was the investment banker, I would have brought it out at $15 and with less shares. Which means on price, I would have brought it out at 10…or less.

No, they bring it out at 38 like it’s the 2nd Coming. You guys open it up at $42. Thankfully, you recognize it and it closed at 38.

It’s 26.85 today.

And now in the aftermarket it’s under 24.

Everybody who has invested in this has lost money. Most of the secondary people who got it before the IPO are losing money.

This must be a lesson to you about price as well as on these investment bankers who never ever learn from their mistakes. Without another massive bubble, this was a gimmee to be a disaster.

How do I know this? Because they did the same thing in 1999. Fast forward, they’re trying to do it again.

And just so happens that Facebook is a biggie.

And I’m sitting here looking at Zynga trading at 3, down from 10. Groupon at 6 1/2, down from 20.

I want to throw up. Not for me because I don’t own any, but for you guys who may have been jumping on these things.

And I use Facebook. I love Facebook. I go on it. I’ve got a page. I found some old friends from college and high school there. Nothing I am saying here has to do with the company. It has everything to do with price.

These investment bankers screwed you…and they knew it. They knew you were getting screwed at the price they were bringing it out at. They were in hopes another bubble was being created. There were some analysts that had the nerve to talk positively of the stock…which was absolutely nuts.

Anyway…back to my point. Pick your poison and do some homework. Just a short glance at the numbers would have kept you out. Facebook, even at these levels is still at about a $55 billion market cap. Just ask yourself whether right now you would pay $55 billion for this company. Again, this is not an indictment on Facebook the company. It is an indictment on whoever priced it at this number where no one had a chance. 


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Gary Kaltbaum owns Kaltbaum Capital Management, LLC (“KCM”), an investment adviser registered with the U.S. Securities and Exchange Commission. The opinions expressed herein are those of Mr. Kaltbaum and may not reflect those of KCM. The information offered in this publication is general information that does not take into account the individual circumstances, financial situation or individual needs of an investor. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.

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