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The Next Pet Rock

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Among the week’s big headlines is Facebook’s initial public offering. They made a billion dollars last year. Karl Denninger, however, isn’t buying:

  • The company identifies no particular need for the capital; it has cash. This strongly implies that the only reason to IPO is for the insiders to monetize their position. Why, if it's rapidly growing in value and there is no meaningful risk to that value vaporizing (and nobody knows better than top management if this is the case!) would the company do this now?
  • All of the direct payments revenue are for the purchase of "virtual goods" (e.g. things on Farmville); there is no actual hard good or service delivered in exchange for money. That's not shopping, it's pretty close to burning money.  How long will that furnace keep operating?

Those are only two of his reasons. They’re enough for me.

It‘s always worth remembering that if you can figure out what a company is selling, you are the product. Facebook is converts fine-grained personal behavior into pinpoint-targeted marketing information. One one hand, it’s brilliant. On the other hand, it’s creepy.

And on the gripping hand, why would I invest in a company that uses me and my friends to encourage each other to send it money to raise our virtual status?

Since the company also intends at present to pay no dividend you are buying on one thing and one thing only -- the premise that in the future some greater fool will pay more for the shares you buy in the IPO.