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It’s Becoming Clear That No One Actually Read Facebook’s IPO Prospectus or Mark Zuckerberg’s Letter to Shareholders

Henry Blodget

Editor's Note: This post originally appeared on Business Insider

As Facebook's (FB) stock continues to collapse, the volume of whining is increasing.

Four months ago, you will recall, Facebook was viewed as "the next Google." Now, with no major change in the fundamentals, it's viewed as an overhyped disaster. Meanwhile, there is ever-louder grumbling that 26-year-old Facebook CEO Mark Zuckerberg is in over his head and should be relieved of command.

As I listen to all this whining, I have a simple question:

Didn't anyone even read Facebook's IPO prospectus?

The answer, I can only assume, is "no."

Because if anyone had read the Facebook IPO prospectus, they would have learned, among other things, the following:

  • Facebook's growth rate was decelerating rapidly

  • Facebook's user-base was rapidly transitioning to mobile devices, which produce much less revenue

  • Facebook's operating profit margin was already an astounding 50%, which suggested it had nowhere to go but down

  • Facebook's CEO had a nearly unprecedented amount of control over the company.

  • Facebook's CEO had set up this astounding level of control intentionally. Mark Zuckerberg knew all about how impatient public-market shareholders are. And he set up the whole company so he would never have to pay attention to their whining.

  • In the 9 months following the IPO, insiders would be free to sell more than 2 billion shares of Facebook that they had been holding for years

  • Facebook was going public at an astoundingly high price for a company with these characteristics--about 60-times the following year's projected earnings, in a market in which other hot tech companies like Apple (AAPL) and Google (GOOG) were trading at less than 15-times.

Even more importantly, if anyone had read the IPO prospectus, they also would have learned the following, all of which was expressed in a letter written directly to prospective shareholders by CEO Mark Zuckerberg:

  • Facebook's social mission is more important to Mark Zuckerberg than Facebook's business

  • Facebook's business exists to support Facebook's product development, not the other way around

  • Facebook's CEO is an extremely patient man who does not flinch under criticism

  • Facebook will never care as much about clients and shareholders as it does about its service and users

  • Facebook cares about the long term, not the short term (read: decades, not months).

Facebook shareholders may be annoyed by those facts, especially now that the value of their stakes are getting demolished.

But they can't say that they weren't warned.

And they also can't say that the stock has been unduly punished:

At $18, using the correct share count (2.7 billion), Facebook is still valued at almost $50 billion. And it's still trading at ~28-times next year's projected earnings of $0.65, an estimate that looks just as likely to be too high as it is to be too low. Meanwhile, Apple is still trading at less than 15-times projected earnings. So you can't argue that Facebook is now "too cheap."

Lastly, if Facebook shareholders really think Facebook's CEO Mark Zuckerberg is going to cave to their whining and step down now, all of four months after he told them that he only cared about the long term (which, again, is measured in decades, not months), they don't know Mark Zuckerberg.

Again, Mark Zuckerberg set up the entire structure of the company so he wouldn't be forced to make dumb short-term decisions by whining public-market shareholders.

And he TOLD them that he wasn't going to make those decisions.

They just didn't listen.

In the interests of "better late than never," I've attached an annotated version of Mark Zuckerberg's letter.

If you've already read it, here's what else you should know about Facebook's stock--especially Facebook employees.