The long-awaited initial public offering of Facebook is fast upon us, and the press is awash with fawning stories about its hoodie-wearing CEO and how he is re-writing the rules of corporate management.  (Suggestion:  Place these stories in a time capsule to be opened in, say, 2017, with hiliarity to ensue.)  With respect to the IPO at least, it appears that the suits are firmly in control.  The prospectus—other than the ringing preamble “our mission is to make the world more open and connected” and a letter from the CEO describing his management philosophy, the “Hacker Way”—is rather conventional, old school, and boilerplate.  It should provide ample cover against the securities fraud lawsuits that will be brought by investors who are carried away by some of the utopian hype being broadcast through informal channels.

There is much unintended irony in the document, largely a result of the need to shoehorn what is undeniably an innovative and cool business model into the established conventions of disclosure documents and paradigms of financial analysis, as though the lawyers were working from the same Mad Libs template they used for John Deere’s annual report:

When users purchase virtual and digital goods from our Platform developers using our Payments infrastructure, we receive fees that represent a portion of the transaction value. Currently, substantially all of the Payments transactions between our users and Platform developers are for virtual goods used in social games, for example virtual tractors in the social game FarmVille.

The heart of any IPO prospectus, aside from the impenetrable pages of financial statements, is the list of “Risk Factors,” and Facebook does not disappoint, devoting more than 20 pages to this parade of horribles.  Many could have been cribbed from countless other SEC filings, but a few  break some new ground in the annals of CYA:

  • Action by governments to restrict access to Facebook in their countries could substantially harm our business and financial results.
  • Our culture emphasizes rapid innovation and prioritizes user engagement over short-term financial results.
  • Improper access to or disclosure of our users’ information could harm our reputation and adversely affect our business.
  • Computer malware, viruses, hacking and phishing attacks, and spamming could harm our business and results of operations.

And perhaps the most salient warning, buried deep within the document:

  • In making your investment decision, you should not rely on information in public media that is published by third parties. You should rely only on statements made in this prospectus in determining whether to purchase our shares.

Which will it be, caveat emptor or carpe diem?


  1. […] investment advice is not within the normal purview of this blog, we did sound a sobering and skeptical note during the hoopla preceding the Facebook IPO.  Here we are a mere 90 days later, and the share […]

Leave a Comment