At that price? Insane!

By Stijn Viaene, professor of Management Information Systems
(Source: Smart Business Strategies, 10/2012)

  • Professor at KU Leuven and Vlerick Business School
  • Partner at Vlerick Business School
  • Deloitte Research Chair Bringing IT to Board Level

No one could explain to me why Facebook priced its shares at 38 dollars. As a result I wasn’t going to buy any. And I wasn’t going to recommend this to anyone, unless they were keen on playing the lottery.

But then again, what do I know? I’m merely an academic, not a “real business man”. A comment I tend to just shrug off. Every man to his own trade, I usually answer. But admittedly I’m told this a lot. And not by just anybody. Amongst the culprits is my very own brother Pieter. Ah family, don’t you just love ‘em?

Jeroen Meus has a private trainer to help him keep fit. I have Pieter. But he also threw me a questioning glance that Sunday morning in May, when we were cycling through the countryside in Flemish Brabant. Was I intending to buy Facebook shares? That question definitely had a surreal feel right there, amidst the fields. What’s more, I was just recovering from a small uphill climb.

“Are you?” I cleverly turned the question around. A little teacher’s trick. It tends to stimulate introspection. And anyway, I don’t really fancy advice on shares. Too much of a “hocus pocus” effect, I feel. And anyway, following the market crash, my track record on the stock exchange has been nothing to write home about.

In the end Pieter decided not to buy any. With the current valuation of Facebook shares you can hardly call this a wrong decision. Unless the high expectations are still met that is. But what is the introductory share price based on? First of all, important information was withheld in the IPO. But irrespective of this, can anyone explain what business model Facebook is going to use to make those big bucks? Advertising revenue? Yeah right!

Mark Zuckerberg claims that we’re not seeing the bigger picture. But apparently even insider Peter Thiel has given up on seeing it. Recently he got rid of 20 million shares, at the first opportunity.

Time for Mark to take us by the hand and explain it to us step by step. It’s highly unlikely that the stock exchange will trust him again, no questions asked. Of course, I could be horribly wrong. Let’s face it, “Value is what a damn fool will pay for it”. Well, long live the insane prices!

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