Friday, March 11, 2011

Facebook's Founders Selling Shares

While checking out the Forbes Billionaires list, I saw a link to an article about the Facebook's founders reducing their shares.  What is that old Wall Street truism about insider buying and selling as the best leading indicator of a firm's share price?

That the owners' shares would decline is sensible enough - they have been accepting small investments in the firm - at successively higher valuations.  But the article seems to imply that the owners have also been doing private transactions for their shares - i.e. that the stock sales are not through new issuance but through the founders looking to raise cash.

This surprises me in several cases.  I suppose that Sean Parker, who is now in private equity could need some cash for making investments in new and promising businesses.  And Eduardo Savarin would no doubt like to carve out some wealth on his own.  It is harder to see the rationale for Moskovitz and Zuckerberg, who control the company. 

They could just pay dividends to themselves (assuming the company is making money).  That the company doesn't seem to be doing a capital raise indicates that the firm doesn't need the cash.

Personally, I think it likely that they are hedging a bit - with an IPO coming, there are a few investors willing to pay insane valuation to speculate that the company could be worth $150-$300bn, so the insiders are picking off people willing to make the highest valuations.

I guess I am simply not sold that this is a great busienss.  Yes, it has alot of user accounts.  But so did MySpace.  Let's see what happens.

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