After three days of trading on the Nasdaq Stock Market, Facebook Inc. shares now fetch 18 percent less than their initial public offering price. And even before today's 9 percent drop to $31, the press was smelling blood.
"Complaints of Too Many Shares," read the headline on the top of the front page of today's Wall Street Journal. "Blame Game Begins As Stock Fails to Pop," the Financial Times said on Page One. At the New York Times: "As Facebook's Stock Struggles, Fingers Start Pointing." Bloomberg News: "Facebook Tumble Means Morgan Stanley Gets Blame for Flop."
Let's get one thing straight. If an investor (and I use the term loosely) lost money this past week buying Facebook shares, that investor is the person who bears the responsibility for making a bad trade. Except you won't see many people volunteer to go on the record telling a reporter: "I speculated. I lost. I blame nobody but myself. Life goes on. Next!"
As the risk-factors section of Facebook's prospectus said: "The initial public offering price for our Class A common stock was determined through negotiations between the underwriters and us and may vary from the market price of our Class A common stock following our initial public offering. If you purchase shares of our Class A common stock in our initial public offering, you may not be able to resell those shares at or above the initial public offering price."
Nobody forced anyone to buy Facebook shares. Blaming the company's underwriters for the stock's plunge is like losing money at a casino and then waiting until afterward to complain about the house's odds.
Sure, Facebook and its underwriters may have overestimated demand for the company's shares. And it's true that the stock's opening was marred by computer glitches at Nasdaq. These were known, foreseeable risks. On the flip side, Facebook's underwriters, led by Morgan Stanley, seem to have done an effective job of raising as much money as they could for the company and its selling shareholders -- which is what they were hired to do. Facebook didn't leave any money on the table.
For 2011, Facebook reported $1 billion of earnings on $3.7 billion of revenue. Even after this week's plunge, the company still has a $66.3 billion stock-market value. Facebook's market capitalization could be $200 billion or $20 billion, and either would make as much sense as the other. The current valuation is completely detached from the business's historical performance, and is driven more by fashion than fundamentals.
Everybody who chooses to wager in this arena should be prepared to lose their shirts -- with no whining.
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)