Ain't Touching Dis'

Seems interesting to us that the hoopla over the IPO of Facebook is taking place within the same 24 hours of the world's greatest investor having dumped about half a billion dollars into a declining business, newspapers. Warren Buffett has made clear he will not be participating in the Facebook IPO, instead he bought a bunch of mid-size newspapers yesterday. This posting is not about that purchase, but more about IPO investing. 

Frankly we find it silly that the media goes ga ga over the IPO of Facebook, we  suppose they think that the news will bring high viewership and maybe it does. Certainly the new billionaires and millionaires now should be fodder for media types who believe these people need to pay bunches of more taxes.  In any case investing in IPO's is a risky business and today we will sit and watch having nothing to do with this new stock presently. 

Facebook has what we in the media business considered extremely valuable, lots of eyeballs. Like almost one billion eyeballs now and that is more than every newspaper, television, radio, and all other media combined have ever put together in one place. Lots of people who they can target via likes, where they live, and just about every other subset you can imagine. That makes for some nice advertising sales opportunities. But the word OPPORTUNITIES is the key here as Facebook is as yet to monetize those eyeballs and more importantly prove they can move consumers to make purchases.  Google has accomplished this task, we will have to see if Facebook for do so.  

That gets you back to newspapers, who have proven they could move consumers to purchase items, but now with hugely declining circulations have lost so many of those eyeballs that most can no longer get advertisers to buy ads. Warren Buffet believes as we do that mid sized daily newspapers have some potential since they still are the primary media in their markets. Reminds us of the legacy telecom business, which many investors have given up for dead. Maybe we should un-retire and offer Mr. Buffett our services in his new newspaper ventures since maybe he would give our ideas a chance, unlike many of those who would not listen to our ideas when we worked in the business. 

Facebook must find a way to monetize all those millions who use their product for free and make some profits if they are going to get past the less than $4 billion in revenue they had last year. The current market value of around $100 billion is not even close to be justified for the smallist revenue and even smaller just under $100 million in profits.  

Today's IPO price of $38 could very likely rip upwards to $60 or more sometime during the day due to the desire of many of get in on the deal and flip the stock for quick profits. Only fools buy into this silliness and we "ain't touching dis" so to speak.  If the shares back off to below $38 sometime down the road we might buy some hundreds of shares and put them away for a decade for speculation purposes.  Rarely do IPO's work well for those of us who do not get in on the offering pre-market so buyer beware is the smart path here. 

Of course maybe we are not the ones to tell anyone about IPO's since during my lifetime we have had three chances to buy IPO's before market opening.  Back in the middle 1980's our broker at the time, the late Andy Augustine, called and said we could buy up to 500 shares of a new software company IPO since he had some pre-market shares to distribute.  We asked him to tell us about this "software business" as what do they make towels or something. No he said they make programming for computers. We told him we had no interest after his repeated points that this was a great opportunity. The company being offered Microsoft of course went on to do quite well. Not so smart there. 

Another offering we did get in on early was Dolan Media where we worked at the time and we bought 1000 shares in pre-market and had another 500 at zero based cost as a management person. The stock opened at $14 and today is selling below $7.  Not so smart there either. 

The final opportunity we had at a IPO was a hardware store from the same broker noted above in the Microsoft offering. Mr. Augustine called us about the hardware store IPO and frankly we did understood that business and the idea the new business owners had of large highly stocked hardware stores.  We bought 500 shares in pre-market there too. Fortunately for us the company Home Depot went on to do very well and we made lots of money in that IPO which allowed us to expand our investing opportunities with lots of new capital. 

So again we will not be buying any Facebook, but maybe we am not the one to do the advising.