Mark Cuban, financial guru, is known for his candid and sometimes contradictory financial (or life) advice. Typically I enjoy his commentary because he likes to cut right to the core of a topic and clear the air of the convoluted bullshit that sometimes surrounds financial arguments. In this case, he swats down some non-sense about what plagued the Facebook IPO and why it isn’t performing at the level some expected.
It comes to us in five chunks of information he blasted out on his blog site yesterday. I’ll try to summarize as best I can, but you can also follow the link to his post. To begin with, he explains why the individual investors on Wall Street are going to be getting the shaft from now on. Essentially he wants us to understand that big investors and banks are just using disinformation to screw us out of our hard-earned dollars. I think gets the nail right on the head with that, but it’s definitely nothing new.
Second, he warns about the activity on secondary trading markets and how they can mess with the values company’s are placing on themselves. I’ll let him explain that a little further. Here’s a segment from the post:
“Can you imagine how pissed you would be if you bought a boatload of Facebook thinking you got in at a better than IPO price only to watch the price on the open market post IPO drop below the price you paid in the private market ? Ouch.”
“The law of unintended consequences is that the dynamics for how private companies are valued and are able to raise Pre IPO rounds could quickly change if the prices and volumes on SecondMarket and its competitors declined significantly.”
His third point keeps right on with a company’s valuation and how it really isn’t an indicator of anything. Share prices are ultimately dictated by supply and demand. Again he comments:
“Valuation has no relevance what so ever. Conventional wisdom says the buyers of stocks will try to determine the value of a stock before they buy or sell and make the appropriate rational decision. Not even in a Richie Rich cartoon does that happen.”
His fourth point is the pinnacle of the conversation. It has to do with mobile browsing and, as I have already said before, cuts right to the core of the issue. I’ll summarize. Do you really think people are going to start watching movies, going on Facebook, checking out YouTube videos explicitly on the mobile web? Essentially he believes you are an idiot if you buy into the notion that mobile will kill Facebook.
Reasons? People have limited data plans and cannot afford to only use mobile devices for online entertainment. Second, the amount of desktop internet viewers is increasing every year. Third, the only other alternative you have to your mobile device is television if you decide to disconnect your home computer from the internet. I think that just about covers it. I’ll throw in that most mobile device screens are rather diminutive in size and not what I want to curl up to on the couch. He poses the question, do you really think mobile viewing is going to put Facebook under?
Here’s exactly how he put it:
“Bottom line, if you think mobile will displace online usage from PCs then you should immediately short Google and other ad plays and buy TV stations and networks. If you can’t buy an ad effectively on mobile and no one is using a PC to connect to the internet any more, then the only way to reach an audience is going to be via good old tv. And all that over the top video noise, forgettabout it.”
The fifth point and grand conclusion to his post is that he purchased about 150.000 shares of Facebook for around $32 per share. So obviously he’s not banking on the shares being worthless by any means. I like what he’s saying and think it could be some good advice for evaluating future investments, especially tech IPO’s.