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Facebook's Pointless IPO Fear

 May 14, 2012 09:27 AM

Author: Barry Randall, Crabtree Asset Management

Covestor model: Crabtree Technology

It's interesting to see the lengths to which Mark Zuckerberg is going to avoid taking Facebook public. Never mind that Facebook has actually filed to go public with the SEC and did its road show last week. You'd think poor Mark was trying to avoid going to the dentist.

But of course the moment that Facebook accepted its first venture capital from Accel Partners in 2005, Zuckerberg implicitly agreed to eventually take the company public, even if he didn't understand it at the time. And in becoming a public company, the shareholders will be in charge. Well, mostly. Thanks to Facebook's dual share classes, Zuckerberg will continue to own 57% of the voting power.

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As someone who has analyzed technology IPOs for nearly 20 years, I'm continually fascinated with CEOs' fear of becoming a public company. Often this fear centers around a company's relationship with "Wall Street" and its supposed "fixation on short-term results." When Google went public eight years ago, its founders included a letter within the IPO prospectus that served as a kind of manifesto of independence from dreaded Wall Street pressures. It included the following sentence:

[Related -Google Inc (GOOG): Why Nest Labs Deal Is A Wakeup Call For Apple Inc.?]

In our opinion, outside pressures too often tempt companies to sacrifice long term opportunities to meet quarterly market expectations. Sometimes this pressure has caused companies to manipulate financial results in order to ‘make their quarter.'

Facebook's own IPO prospectus includes the following passage in its Risk Factors section:

Our culture also prioritizes our user engagement over short-term financial results, and we frequently make product decisions that may reduce our short-term revenue or profitability(.)

I suppose investors should be grateful that these great and glorious enterprises have deigned to alert us to their principled stand against myopia and abeyance to the baser impulses of the money changers. Thank you lords, for warning us!

But these "protest-to-much" memos from soon-to-be billionaires mostly serve to reinforce their self-importance.

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