Faceplant

Who would of thought an internet company with 900 million users would fall so hard once it hit the open market?  Well, apparently all the insiders knew.  During the week of their “IPO Roadshow” the underwriters for Facebook slashed estimates some 50%.  That would be all fine and good but they did not alert the public of such doings. 

Nevertheless, Facebook promoted their IPO like Men in Black 3D!  Their main point was that we have 900 million users so we are profitable and everything is fine.  In reality, this company was valued at over $100 Billion with net income somewhere around $500 to a 1 Billion.  To put into perspective, a company like 3M (NYSE: MMM) has a net income of $4.2 Billion and even pays a dividend of $2.36!  There market cap is half of what Facebook was.  The market has thrown FB back down to where it should be (or should it be lower?). 

I would say the fear now would be is FB going to pop like a balloon.  After their first earnings release, if they do not completely crush their estimates, the stock will get absolutely crushed.  The insiders have made some heavy trades already, as early as the first day of trading.  Goldman Sachs sold 25 million shares ($800 million), Microsoft sold 6.5 million shares ($246 Million) and the boss Mr. Zuckerberg sold 30.2 million shares ($1.2 Billion).  Is this relevant? Maybe not.  But what is most intriguing about these insiders’ sales is that they all sold at the same price, 37.58. 

The IPO price was $38; Meaning that these major holders were satisfied with selling their stock under the IPO price.  They are not even holding until the first earnings release which could potentially move the stock upwards quite a bit.  To me it looks like the main investors have been trying to cut their losses.  Maybe is it a bubble that’s going to pop.  Maybe they really do have what it takes to survive in this extremely tough economic environment.  Just keep in mind that from the .com bubble there are only 3 surviving .com’s which are Yahoo.com, Amazon.com and Ebay.com (Google does not count as they IPOed in 2004).  Will FB be a survivor?   

Starbucks: Taking Over the World One Cup At a Time

Named after the first mate in Herman Melville’s Moby Dick, Starbucks now has over 19,000 stores worldwide.  However, this coffee magnate and iconic symbol of the recent times was not always large and in charge.  The first Starbucks opened in Seattle in 1971, founded by two teachers and a writer.  The three were inspired by entrepreneur Alfred Peet (Peet’s Coffee).  Originally they purchased green coffee beans from Peet’s and then began buying directly from growers.

In 1984, the original owners of Starbucks, led by Jerry Baldwin, purchased Peet’s Coffee.  In 1998, they sold to Schultz II Giornale, which rebranded the coffee stores Starbucks.  After graduating from Northern Michigan University, Schultz worked as a salesperson for Xerox.  In 1979, he became general manager for Swedish drip coffee maker Hammarplast. 

On a buying trip to Milan, Italy for Starbucks, Howard noticed that coffee shops and bars existed just about everywhere.  He learned that they not only served great espresso, but was a common meeting place for the population.  It was a large part of the country’s “social glue”. 

After having success with the café concept, the owners of Starbucks still refused to become a part of the restaurant business.  A frustrated Howard Schultz started his own coffee shop in 1985 called II Giornale after a Milanese newspaper.  Two years later, the Starbuck’s management decided to focus on Peet’s Coffee & Tea and sold the Starbuck’s retail unit and II Giornale to Schultz for $3.8 million.  He renamed II Giornale with the Starbucks name and began to aggressively expand across the United States.

Schultz did not believe in franchising and made it a point for Starbucks to retain ownership of every domestic outlet.  25 years later, Starbucks is a household name all over the world.  I think the original owners of Starbucks that decided to focus on Peets Coffee & Tea may be somewhat upset with their original course of action.  Currently, Peets Coffee & tea (NASD: PEET) has a market value of $828 million.  Not too shabby.  Today, Starbucks sits at $55 a share and has a market value of $42 billion.  It’s almost 40 times larger than Peet’s. 

The aggressive nature of Shultz’s expansion combined with a product that everyone in the world seems to like will perhaps keep Starbucks growing forever.  You figure people will never stop drinking coffee as long as people always have to get up for work.