Will The Facebook Fiasco Hurt Obama?
Does the fizzled out Facebook IPO tell us anything about the state of the economy? Not really.
The Washington Post’s Ed Rogers has one of the more bizarre takes I’ve seen yet on the whole Facebook IPO kerfuffle. It started yesterday in a column where he threw out this throwaway line at the end of a post about Obama’s lackluster performance in Tuesday’s primaries in Arkansas and Kentucky:
[Y]esterday’s votes contribute to an overall gloomy atmosphere for Obama. He needs something to brighten the aura around his presidency. There is no spark. Even the Facebook IPO fall has probably done some harm to Obama by contributing to the fear that our economy can’t shine anywhere. It suggests malaise at best and more insider chicanery at worst, just what Obama was supposed to be the savior antidote for. More than anything else, Obama needs some good news.
Rogers expanded on his argument in a post today:
Rather than a sign of American financial resurgence, it looks like an exploding cigar. Obama is not to blame for what happened with the botched offering. However, it affects the economic atmosphere in a way that reinforces how bad things are and how pessimistic voters are about the prospects of an economic revival. Successful IPOs are great wealth-creators, but they have been particularly scarce during the Obama years. Maybe Obama thinks this is good. I’ve never heard him say otherwise. Has anyone else? Nothing about the Facebook IPO boosts confidence in the environment in which Obama needs to try to build political momentum. And since bad gets worse, there are now reports that on top of the financial debacle, criminal, congressional and civil inquiries have begun that will linger in the headlines through the election.
As I noted yesterday, though, to the extent that the decline of Facebook’s share price since the IPO has due far more to facts unique to the company, not anything to do with the economy. Facebook’s share price dropped from $38.00 to $32.00 in three-and-a-half trading days because the market determined, correctly many would argue, that the valuation placed on the company at the IPO price was too high. That determination is going to be based primarily on the growth and earnings potential of the company, the issues it will have to deal with in the future, and the market’s overall confidence in management to deal with these issues and earn a return for investors. Certainly the overall state of the economy also influences these determination to some extent. After all, if the economy is slowing down or sluggish, the companies that advertise on Facebook are likely to cut back on their spending, and that in turn is going to impact Facebook’s earnings (as I noted yesterday, 85% of Facebook’s earning’s in 2011 came from ad revenue). However, the state of the economy would be something that impact’s investor decisions regarding all stocks, not just an Initial Public Offering in a single Tech company. When you look at the market as a whole, stocks values are rising on average. If there really was an economic judgment behind the drop in Facebook’s share price, wouldn’t we see that reflected in stock prices as a whole? That part of Rogers’s argument doesn’t hold up at all.
For all these reasons, it strikes me as incredibly silly to suggest that what has happened with Facebook’s share price, and it’s worth noting that the company’s stock has been trading in the open market for less than a week, either tells us anything about the economy in general or will have any significant impact on the Presidential race. It’s barely even a data point. Rogers is fishing in an empty pond here.
It is like the gas price canard. People who are willing to believe that Obama is responsible for every bad thing happening will lap it up and spread it around the wingnut blogosphere. Notice that no one is giving Obama any credit for gas prices falling in the last couple of weeks. That has to be due to other factors!
Actually, Ed should better. He sould know that the market for IPOs has been especially difficult since the passage of Sarbanes-Oxley in 2002. SOX layered in significant compliance costs that dried up large IPO activity.
It isn’t just the Obama years. Going public now means that a company planning an IPO must have significant cash reserves going in, because once they’re public they will have higher audit costs and more securities compliance and regulatory-related responsibilities – it’s costly. SOX has killed off the smaller IPO activity and made it a big player game.
I too, find Rogers’ clumsy tie-in of this IPO to Obama as bizarre.
The Facebook debacle has shown once again that trading on inside information is still the norm on Wall Street. Add to that the JPMorgan debacle that shows the big banks have no risk managment to speak of.
Romney wants to roll back the already tepid reforms that have taken place so that these people have free reign to destroy our economy again. His position that he has business experience is a meaningless joke. Steve Jobs was a damn fine CEO but he would have been a disastrous president. Business and politics are apples and oranges.
I yield to no one in my criticism of Pres. Obama’s economic stewardship. However, Facebook’s problems are Facebooks problems, not Obama’s.
Social media may be here to stay, but I personally believe Facebook has passed its heyday. Its the nature if the next greatest thing. Twitter is on top right now.
I wonder how much of Zuckerberg’s stock is restricted?
The silence on that has been telling, considering how many people blamed him when prices rose.
A ,lot of this comes from the fact that pundits are never held accountable for being wrong. There’s an incentive to make weird, outlandish claims because if you’re right, you look like a genius. if you’re wrong nobody cares.
@MM: Yah, I wonder what would happen if we instituted a policy where yearly all the pundits were rated on the accuracy of their predictions from the year before. Those who didn’t do any better than blind luck would have to shut up for the next year.
Hey, a girl can dream, can’t she?