- key questions about Facebook's IPO; and
- how to profit from market assumptions gone wrong
10 Facebook Questions That Need Answering Posted at 3:12 p.m. EDT on Friday, May 25 And still no one is talking about the number cut. I am getting incensed by this lack of discussion about the numbers being sliced for Facebook ( FB) right before it came public. Humor me. Why is it not possible that what happened here is that each time the bankers checked with Facebook, the earnings estimates had deteriorated? You want to talk business as usual? Here's what happens. Facebook's looking for, say, $1 a share in 2013. The company tells the brokers it is going to do 80 cents. What's the point of disappointing in the first quarter that you come public? That makes no sense. So you lowball, usually lowball big. So, I have to believe that the 88 cent number that everyone allegedly had was the low-ball number. Now, with just days to go the number switches to 83? That's stupefying, but no one is talking about how bad things must be for that to happen. If anything, the idea is that perhaps the numbers are so strong that the deal has to be upsized and the price raised simply because it is too cheap on earnings. > > Bull or Bear? Vote in Our Poll Instead the insiders got the same word we didn't, the buyers got the same word we didn't and the bankers made the cool and cynical decision that the public would not care about the earnings and it would just want to be part of the 900-million-strong soldiers of Facebook. I actually wonder whether everyone could have been that cynical?
- Did Facebook know that the last quarter was actually not a seasonally weak quarter, but was a secularly weak quarter because of the shift to mobile?
- Did the bankers freak out and realize that they had to get the most for Facebook despite the slowdown so they could keep winning business?
- Did the bankers then favor the insiders who have so many more deals down the pike so they will go with Morgan Stanley next time?
- Did the bankers realize they were going to crush the big buyers by having to reveal eventually that there is a secular trend against Facebook and that Facebook cares more about not junking up its site than about giving the advertiser what it wants? That's why they tipped selective people off and nobody else? They didn't want to burn the big institutional payers?
- Did Morgan Stanley figure that its retail network didn't know the difference and would just be grateful to get some stock, any stock, regardless of whether the company was doing better or worse than expected?
- Is it possible that the reason why the software glitch was so evident was there was unprecedented selling from Morgan Stanley (MS) as the big institutions who couldn't cancel had to dump it lest they started losing money?
- Was the problem compounded by the fact that the over-the-transom orders came from companies that only had one-way flow, like Knight Capital (NITE) and Citadel, the classic aggregators of retail orders?
- Did the high-frequency traders get tipped off about all of the stock there was to sell at Morgan Stanley and then run ahead of them causing further chaos at the Nasdaq?
- Were there talks at the highest level about delaying the offering either by Morgan Stanley the night before or by Nasdaq that Friday morning, but too much hoopla and excitement made it impossible to cancel?
- Will the government be able to try to answer these questions or are these just the musings of a madman who was a gigantic player in the IPO market, brought public an Internet IPO and knows the way the Street works when it comes to numbers better than the government?
Profit From Bogus Extrapolations Posted at 1:26 p.m. EDT on Thursday, May 24 Sometimes this market just gets way too negative because of some short-sighted extrapolations that make no sense to me -- or, a few days later, to the market either. But they represent great opportunities you need to keep track of. In the last 24 hours, we have seen not one, not two, but three examples of this nonsense occurring. First is PVH ( PVH). This company has a tremendous royalty stream in Calvin Klein and an amazing franchise in Tommy Hilfiger, as well as the dominant position in shirts and ties in this country. I often joke that the Justice Department should be looking into PVH because it owns one-third of the shirt market and 50% of the tie market. That is remarkable. Odds are you are wearing something the company makes or that some of its merchandise is in your closet. But PVH makes about one-third of its sales in Europe, and even though those sales are largely made in the wealthier European countries, people can't resist betting against it. Recently, those bets grew vociferously when Fossil ( FOSL) reported a terrible quarter and gave miserable guidance in part because of Europe. So let the extrapolations begin. A short position built in PVH of severe proportions. But when PVH reported last night, it showed no degradation at all in Europe and an amazing acceleration of sales in the U.S. with May being the strongest month of all -- something that was not yet in the numbers. Of course, the stock soared after hours and continues to climb. I think it can go still higher. Then there's the curious case of Dell ( DELL) vs. Hewlett-Packard ( HPQ). As I said to Markets Reporter Deborah Borchardt in one of our videos on TheStreet today, I think Hewlett-Packard put in a bottom yesterday that can stand for some time. Why? Because there is now a huge short base, supported by comments by Dell, that the personal computer sector is hurting badly. So people, including yours truly, felt it had to be across the board. But last night, Hewlett-Packard put up some terrific PC numbers, especially given that the company itself was about to split off its PC division, which should have been a sales killer.