Bloomberg News

Facebook IPO a ‘Secondary Offering,’ Ritholtz Says: Tom Keene

February 03, 2012

Feb. 2 (Bloomberg) -- Facebook Inc.’s announced initial public offering is more like a secondary offering, according to FusionIQ’s Barry Ritholtz.

“There was a group of retail brokers about a year ago that have been using secondary markets to buy up what little Facebook, and even Twitter, shares they could from employees, repacking them and offering them to retail investors,” Ritholtz, chief executive officer of FusionIQ, said today in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “The IPO is now the secondary, they are now allowing the IPO purchasers and early investors to cash out.”

The world’s largest social-networking site filed yesterday to raise $5 billion in the largest Internet IPO on record. The company named Morgan Stanley as the lead underwriter while reporting a 24-fold increase in sales over the past four years to $3.71 billion in 2011.

According to Ritholtz, the Securities and Exchange Commission made a “terrible mistake” in allowing individuals to trade on secondary markets.

“I actually think the IPO was forced on them because they ended up with thousands of shareholders, technically in violation of SEC guidelines,” he said. “Once you have a few thousand shareholders, you have to go public because you are essentially already.”

‘Smart’ Versus ‘Streetwise’

The planned IPO dwarfs Google Inc.’s 2004 offering and tests whether social-networking providers deserve market values that rival such established companies as McDonald’s Corp. and Caterpillar Inc. The Menlo Park, California-based Facebook is considering a valuation of $75 billion to $100 billion, people with knowledge of the matter said last week. According to Ritholtz, such a valuation may not be best as shares hit the market.

“We know Mark Zuckerberg is smart, but we don’t know how streetwise he is,” he said. “If he’s really streetwise, he will price this at $35 billion to $45 billion and leave some upside. If they price at $70 billion-$80 billion, they are essentially saying to the public, we are going to capture all the upside early.”

After reading Facebook’s filing, Ritholtz said the company is a lot less dependent on advertising than most believed. He added that he wasn’t sure if Facebook had come up with the “secret sauce” that Google found when it created a revenue auction method of buying keywords. He said Google generates about $30 per user in revenue, while Facebook is in the $2 to $4 range.

“Facebook is notorious among advertisers for everybody ignoring their ads,” Ritholtz said. “They talk about how many people are engaged for hours, but there is a big percentage of daily users that are there for a quick log-in and they leave.”

--With assistance from Brian Womack in San Francisco. Editors: Kenneth Pringle, Greg Storey

To contact the reporters on this story: Austen Sherman in New York at; Tom Keene in New York at

To contact the editor responsible for this story: Dave Liedtka at

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