I have heard of short term memory, but this borders on amnesia. Were the buyers in this latest secondary transaction (Twitter at $10B) asleep during the Facebook IPO? Did they miss the part where lots of well intentioned “investors” bought Facebook shares at $80B, $90B, $100B, only to see the shares trade down to a fraction of that value? Did they somehow overlook the catastrophic secondary transactions that preceded the Groupon and Zynga IPOs?
Don’t get me wrong. This is not a commentary on Twitter as a company. I’m a fan of Twitter. I’m a big believer in Dick Costolo. And I have seen the massive value of Twitter as a service. But the buying behavior we have seen in the secondary markets makes no sense. What do these buyers of secondary shares actually know about the business of Twitter? Do they have any idea what the revenues are? Do they have any idea what the cost structure is? Do they know how much preference sits in front of the common stock they’re buying? Do they know how much debt the company has on its books?
Several yeas ago an investor called me to discuss Splunk. He had the opportunity to buy a number of Splunk shares on the secondary market. He asked me how the company was doing. I shared some vague platitudes about what a fan of Splunk I was. He then asked me what Splunks revenues were. I told him that I would not reveal that information. He asked me if Splunk intended to go public or sell to a strategic. I assured him that either was possible and that I had no intention of sharing anything more about the company’s strategy. He was undaunted. He continued to ask me probing questions about the inner workings of the company. I grew increasingly curt with him.
After asking me several more questions about Splunk’s business, I snapped at him. I told him that the information he was seeking was confidential and therefore I would not share it. I then told him that one of two things was going to happen. Either he was going to acquire that information inappropriately, or he was going to make an uninformed investment decision. In other words, if he bought the shares on the secondary market, he was either a jerk or a dope.*
Now I suppose there’s a possibility that these latest secondary buyers had full access to Twitter’s financials. But I doubt it. I suspect that they, like many of the secondary buyers prior to Facebook’s IPO, Groupon’s IPO, Zynga’s IPO … are betting, not investing. What will it take to shake some sense into these secondary market “investors”? I don’t know. But apparently they haven’t been shaken enough yet. The secondary market stupidity continues.
* I think I actually told him that if he bought the Splunk shares he was either “a scumbag or a moron.”