Over the course of a dozen letters between Facebook and the U.S. Securities and Exchange Commission, the social networking giant’s management team seems intent on obscuring key details leading into its initial public offering. The IPO was disastrous, for want of a better term, and now it turns out that Facebook was either unable or unwilling to share details of its business plan with the SEC.
Facebook filed its proposal to “go public” in February and celebrated its advertising effectiveness as grist for the mill.
Officials at the SEC were less than enthused about the possibilities, however, and pressed the social networker to ensure that all relevant material was included in the filing. The problem with the claim as to the efficacy of Facebook’s ad model was pretty straightforward: it came from the company’s own marketing materials.
Facebook cited research from Nielsen as support for the efficacy of the ad model, though, so the SEC pressed on and told the company to produce the Nielsen data. If it couldn’t, references to the Nielsen data shouldn’t be used.
Facebook, after resisting initially, dropped the reference to the Nielsen data.
What’s more, Facebook’s executives seemed to be holding back on critical mobile numbers as well. The site touted those numbers are being critical to growth, thus bolstering the IPO’s prospects for success, but there was some evidence that Facebook was doubling up the mobile numbers.
In a letter to the social networker, the SEC’s assistant director for corporate finance wrote: “Please explain to us how you determined that your metrics are not overstated.”
From the outside looking in, it appears that Facebook held back on its real mobile numbers until about a week prior to the IPO. Facebook failed to disclose the exact figures, along with the geographical information and relevant information about how the company intended to create revenue from said mobile users. That’s an awful lot to leave out.
So what’s going on here? Did Facebook know that their foundations and numbers weren’t looking so hot? Did they intentionally leave out certain figures to boost appearances leading into the IPO? And did the SEC have a responsibility to make the exchanges between the agency and the company public before the IPO, thus preparing investors for a Facebook that was shakier than a virgin on prom night?
Right now, the SEC only releases pertinent information about a month after shares have been sold to investors. It is reasonable to assume, as Bloomberg’s editors surmise, that investors may not have backed Facebook had they seen how unprepared executives were at the company.
It is standard practice for the SEC to push newer companies ahead of IPOs and it is now standard practice for the SEC to release the letters some 20 business days after the clearing of the IPO (they would previously only be released through Freedom of Information Act queries), but shouldn’t it be standard practice to include such letters as evidence ahead of the IPO? It seems only fair.