Since we first published our report about impending mass layoffs at HP, we've heard from a bunch of HP employees offering us more details.

They paint a scary picture, particularly about the beleaguered HP Enterprise Services group.

In 2008, HP spent $13.9 billion to buy EDS, folding in HP's smaller services arm and renaming it HP Enterprise Services (HP ES). This group handles outsourcing contracts for HP.

• Layoffs have been going on for years. HP originally said it would shed 25,000 workers and that it was done with this in October, according to documents filed with the SEC.

• Perhaps as many as 5,000 more people have been laid off since March, said one former employee who was let go in April.

• In March, HP employees began hearing that HP was planning on laying off 30,000 people across all units, with ES hardest-hit.

• Employees have been steadily leaving, too. This could be hurting some of HP's contracts, like its Navy Marine Corps Intranet/Next Generation Enterprise Network.  The Navy renewed its contract with HP in 2010 for $3.3 billion in a five-year deal, but the Navy would rather end the relationship, Wired reported at the time. "Over the past 10 months, over 70 employees have left the NMCI/NGEN contract. All for higher-paying jobs, better jobs," said one former employee.

• The HP ES team never felt integrated with the rest of HP. When HP bought EDS, it just about doubled the size of HP. EDS had 139,500 workers and HP had 172,000.

• The cost overruns that Meg Whitman complained about in March were caused by "the HP side," an ES employee said. HP took over the management of EDS's IT tools, like its telephone system. They added staff to manage the tools and charged the extra staff back to what used to be EDS. "Is it any wonder that HP ES's costs rose 10% last fiscal year?"

• A good chunk of the next round of layoffs could be coming from a part of HP ES known as the Business Process Outsourcing unit, sources at HP ES believe. HP has been talking about selling the unit or shutting it down, our sources say. This unit lets big companies hire HP to do tasks such as customer support, human resources, payroll, and accounting.  One employee said that BPO had about 25,000 employees when HP bought EDS and is about half that size now.

• ES had a string of leaders—none of them with a clue, employees complain. "HP ES was never managed properly.  Management never had proper direction from the top down. Almost every 6-8 months, we would get an email about leadership changes," one employee told us.
  
  John Visentin was put in charge of ES last year. "He's been so invisible it's just ridiculous," our source told us. "Meg Whitman came out and said HP ES was HP's biggest problem ... that was in March. He made no statement at all … no emails, nothing."

Last quarter, ES reported $8.6 billion in revenue. At the time, it was HP's second largest unit. (The PC unit was a little bigger.) HP has since reorganized.

Please follow SAI: Enterprise on Twitter and Facebook.

Join the conversation about this story »

Since we first published our report about impending mass layoffs at HP, we've heard from a bunch of HP employees offering us more details.

They paint a scary picture, particularly about the beleaguered HP Enterprise Services group.

In 2008, HP spent $13.9 billion to buy EDS, folding in HP's smaller services arm and renaming it HP Enterprise Services (HP ES). This group handles outsourcing contracts for HP.

• Layoffs have been going on for years. HP originally said it would shed 25,000 workers and that it was done with this in October, according to documents filed with the SEC.

• Perhaps as many as 5,000 more people have been laid off since March, said one former employee who was let go in April.

• In March, HP employees began hearing that HP was planning on laying off 30,000 people across all units, with ES hardest-hit.

• Employees have been steadily leaving, too. This could be hurting some of HP's contracts, like its Navy Marine Corps Intranet/Next Generation Enterprise Network.  The Navy renewed its contract with HP in 2010 for $3.3 billion in a five-year deal, but the Navy would rather end the relationship, Wired reported at the time. "Over the past 10 months, over 70 employees have left the NMCI/NGEN contract. All for higher-paying jobs, better jobs," said one former employee.

• The HP ES team never felt integrated with the rest of HP. When HP bought EDS, it just about doubled the size of HP. EDS had 139,500 workers and HP had 172,000.

• The cost overruns that Meg Whitman complained about in March were caused by "the HP side," an ES employee said. HP took over the management of EDS's IT tools, like its telephone system. They added staff to manage the tools and charged the extra staff back to what used to be EDS. "Is it any wonder that HP ES's costs rose 10% last fiscal year?"

• A good chunk of the next round of layoffs could be coming from a part of HP ES known as the Business Process Outsourcing unit, sources at HP ES believe. HP has been talking about selling the unit or shutting it down, our sources say. This unit lets big companies hire HP to do tasks such as customer support, human resources, payroll, and accounting.  One employee said that BPO had about 25,000 employees when HP bought EDS and is about half that size now.

• ES had a string of leaders—none of them with a clue, employees complain. "HP ES was never managed properly.  Management never had proper direction from the top down. Almost every 6-8 months, we would get an email about leadership changes," one employee told us.
  
  John Visentin was put in charge of ES last year. "He's been so invisible it's just ridiculous," our source told us. "Meg Whitman came out and said HP ES was HP's biggest problem ... that was in March. He made no statement at all … no emails, nothing."

Last quarter, ES reported $8.6 billion in revenue. At the time, it was HP's second largest unit. (The PC unit was a little bigger.) HP has since reorganized.

Please follow SAI: Enterprise on Twitter and Facebook.

Join the conversation about this story »

Since we first published our report about impending mass layoffs at HP, we've heard from a bunch of HP employees offering us more details.

They paint a scary picture, particularly about the beleaguered HP Enterprise Services group.

In 2008, HP spent $13.9 billion to buy EDS, folding in HP's smaller services arm and renaming it HP Enterprise Services (HP ES). This group handles outsourcing contracts for HP.

• Layoffs have been going on for years. HP originally said it would shed 25,000 workers and that it was done with this in October, according to documents filed with the SEC.

• Perhaps as many as 5,000 more people have been laid off since March, said one former employee who was let go in April.

• In March, HP employees began hearing that HP was planning on laying off 30,000 people across all units, with ES hardest-hit.

• Employees have been steadily leaving, too. This could be hurting some of HP's contracts, like its Navy Marine Corps Intranet/Next Generation Enterprise Network.  The Navy renewed its contract with HP in 2010 for $3.3 billion in a five-year deal, but the Navy would rather end the relationship, Wired reported at the time. "Over the past 10 months, over 70 employees have left the NMCI/NGEN contract. All for higher-paying jobs, better jobs," said one former employee.

• The HP ES team never felt integrated with the rest of HP. When HP bought EDS, it just about doubled the size of HP. EDS had 139,500 workers and HP had 172,000.

• The cost overruns that Meg Whitman complained about in March were caused by "the HP side," an ES employee said. HP took over the management of EDS's IT tools, like its telephone system. They added staff to manage the tools and charged the extra staff back to what used to be EDS. "Is it any wonder that HP ES's costs rose 10% last fiscal year?"

• A good chunk of the next round of layoffs could be coming from a part of HP ES known as the Business Process Outsourcing unit, sources at HP ES believe. HP has been talking about selling the unit or shutting it down, our sources say. This unit lets big companies hire HP to do tasks such as customer support, human resources, payroll, and accounting.  One employee said that BPO had about 25,000 employees when HP bought EDS and is about half that size now.

• ES had a string of leaders—none of them with a clue, employees complain. "HP ES was never managed properly.  Management never had proper direction from the top down. Almost every 6-8 months, we would get an email about leadership changes," one employee told us.
  
  John Visentin was put in charge of ES last year. "He's been so invisible it's just ridiculous," our source told us. "Meg Whitman came out and said HP ES was HP's biggest problem ... that was in March. He made no statement at all … no emails, nothing."

Last quarter, ES reported $8.6 billion in revenue. At the time, it was HP's second largest unit. (The PC unit was a little bigger.) HP has since reorganized.

Please follow SAI: Enterprise on Twitter and Facebook.

Join the conversation about this story »

Watch the media freak out over today's Facebook IPO drama below:

Produced By William Wei

And Don't Miss...

• A 60-Second Guide To The Facebook IPO Fizzle

• What's Next For Facebook

• Should You Buy Facebook Stock

Please follow SAI on Twitter and Facebook.

Join the conversation about this story »

Watch the media freak out over today's Facebook IPO drama below:

Produced By William Wei

And Don't Miss...

• A 60-Second Guide To The Facebook IPO Fizzle

• What's Next For Facebook

• Should You Buy Facebook Stock

Please follow SAI on Twitter and Facebook.

Join the conversation about this story »

Watch the media freak out over today's Facebook IPO drama below:

Produced By William Wei

And Don't Miss...

• A 60-Second Guide To The Facebook IPO Fizzle

• What's Next For Facebook

• Should You Buy Facebook Stock

Please follow SAI on Twitter and Facebook.

Join the conversation about this story »

Facebook and its bankers priced today's IPO perfectly.

This morning, when the stock finally started trading, the fair-market price for the stock was about $40--just a couple of dollars north of where the deal priced.

This modest increase meant that Facebook didn't make the expensive mistake that most companies make, which is to let their bankers price the IPO too low and then see a huge IPO "pop." Although these "pops" are often viewed as a sign of a successful deal, they're anything but. They're merely a sign of that the IPO was underpriced: The company and its bankers give pots of free money to IPO buyers for doing nothing more than placing orders. (See: "Congratulations, LinkedIn, You Just Got Screwed!")

To illustrate this, imagine selling your house to a real-estate broker today for $1 million only to have the broker turn around and sell it to a buddy tomorrow for $2 million (a huge "pop"). If that happened to you, you'd feel like a moron. You'd also feel ripped off. And that's exactly what happens with IPO pops.

The ideal IPO is priced just below the market value, just as Facebook's was. This meant that Facebook and its selling shareholders got nearly full value for their shares.

It also meant, importantly, that individual investors who bought the stock after it started trading didn't get stuck buying it at a truly ludicrous price--say, $70. (At $40, Facebook's stock was merely very expensive, not absurd).

And it also means that Facebook won't have to try and fail to live up to a preposterous price.

So the deal was priced well.

But by the end of the day, the broader market, and Facebook's stock, were breaking down.

In the last 15 minutes of trading, Facebook's stock threatened to break through the IPO price of $38. At that point, as they always do, the company's underwriters stepped in to buy shares, trying to keep the stock above the IPO price. And, as they did earlier in the day, they succeeded. The stock closed just above $38.

If the broader market continues to deteriorate, and there's no excellent Facebook news over the weekend, Facebook's stock will likely make another run at $38 on Monday. And, once again, the banks will likely buy humongous amounts of stock to try to keep the stock above the IPO price.

But, if the selling pressure becomes too intense, the banks will give up--and let the stock fall to wherever the new market price is.

And because the banks probably artificially propped the stock up at the end of the day today, there may well be a gap between the true current market price and the price at which the bank-supported stock closed.

So that means that anyone who still owns Facebook might be in for a rude awakening if and when the stock  cracks the IPO price.

But doesn't that mean that the deal was overpriced?

No.

The market value for Facebook's stock for most of today was ~$40. It wasn't just the company's banks that were buying it at that level--nearly 600 million shares changed hands. That's more than the entire amount of stock sold in the IPO.

So anyone who doesn't think Facebook is worth $38--a conclusion that would beg the question why they bought it--could have gotten out today with a gain.

Companies and underwriters do not owe investors a positive return for buying IPOs. And trading stocks is a risky business. So no one should feel that, if Facebook's stock does "break" the IPO price, investors got screwed. (No one forced them to invest. And lots and lots of people warned that, even at the IPO price, Facebook was very expensive.)

In any event, Monday will be interesting.

As I've said frequently over the past few weeks, Facebook's current business does not support the IPO valuation. To justify that valuation, Facebook will have to roll out products and services that we haven't seen yet. So it will be interesting to see whether investors are as committed to the "long term" as they were when they also hoped that Facebook's IPO might deliver an IPO "pop" for the ages.

SEE ALSO: Facebook Is Muppet Bait

Please follow SAI on Twitter and Facebook.

Join the conversation about this story »

Facebook and its bankers priced today's IPO perfectly.

This morning, when the stock finally started trading, the fair-market price for the stock was about $40--just a couple of dollars north of where the deal priced.

This modest increase meant that Facebook didn't make the expensive mistake that most companies make, which is to let their bankers price the IPO too low and then see a huge IPO "pop." Although these "pops" are often viewed as a sign of a successful deal, they're anything but. They're merely a sign of that the IPO was underpriced: The company and its bankers give pots of free money to IPO buyers for doing nothing more than placing orders. (See: "Congratulations, LinkedIn, You Just Got Screwed!")

To illustrate this, imagine selling your house to a real-estate broker today for $1 million only to have the broker turn around and sell it to a buddy tomorrow for $2 million (a huge "pop"). If that happened to you, you'd feel like a moron. You'd also feel ripped off. And that's exactly what happens with IPO pops.

The ideal IPO is priced just below the market value, just as Facebook's was. This meant that Facebook and its selling shareholders got nearly full value for their shares.

It also meant, importantly, that individual investors who bought the stock after it started trading didn't get stuck buying it at a truly ludicrous price--say, $70. (At $40, Facebook's stock was merely very expensive, not absurd).

And it also means that Facebook won't have to try and fail to live up to a preposterous price.

So the deal was priced well.

But by the end of the day, the broader market, and Facebook's stock, were breaking down.

In the last 15 minutes of trading, Facebook's stock threatened to break through the IPO price of $38. At that point, as they always do, the company's underwriters stepped in to buy shares, trying to keep the stock above the IPO price. And, as they did earlier in the day, they succeeded. The stock closed just above $38.

If the broader market continues to deteriorate, and there's no excellent Facebook news over the weekend, Facebook's stock will likely make another run at $38 on Monday. And, once again, the banks will likely buy humongous amounts of stock to try to keep the stock above the IPO price.

But, if the selling pressure becomes too intense, the banks will give up--and let the stock fall to wherever the new market price is.

And because the banks probably artificially propped the stock up at the end of the day today, there may well be a gap between the true current market price and the price at which the bank-supported stock closed.

So that means that anyone who still owns Facebook might be in for a rude awakening if and when the stock  cracks the IPO price.

But doesn't that mean that the deal was overpriced?

No.

The market value for Facebook's stock for most of today was ~$40. It wasn't just the company's banks that were buying it at that level--nearly 600 million shares changed hands. That's more than the entire amount of stock sold in the IPO.

So anyone who doesn't think Facebook is worth $38--a conclusion that would beg the question why they bought it--could have gotten out today with a gain.

Companies and underwriters do not owe investors a positive return for buying IPOs. And trading stocks is a risky business. So no one should feel that, if Facebook's stock does "break" the IPO price, investors got screwed. (No one forced them to invest. And lots and lots of people warned that, even at the IPO price, Facebook was very expensive.)

In any event, Monday will be interesting.

As I've said frequently over the past few weeks, Facebook's current business does not support the IPO valuation. To justify that valuation, Facebook will have to roll out products and services that we haven't seen yet. So it will be interesting to see whether investors are as committed to the "long term" as they were when they also hoped that Facebook's IPO might deliver an IPO "pop" for the ages.

SEE ALSO: Facebook Is Muppet Bait

Please follow SAI on Twitter and Facebook.

Join the conversation about this story »

As the result of a patent case between Motorola and Microsoft, some Motorola Android phones will be banned by from importation by the International Trade Commission.

The ruling says Motorola violates Microsoft's patents in its phones.

Please follow SAI on Twitter and Facebook.

Join the conversation about this story »

As the result of a patent case between Motorola and Microsoft, some Motorola Android phones will be banned by from importation by the International Trade Commission.

The ruling says Motorola violates Microsoft's patents in its phones.

Please follow SAI on Twitter and Facebook.

Join the conversation about this story »

Yesterday, legendary NYU finance professor Aswath Damodaran's predicted how Facebook would probably trade.

He got it exactly right. 

From his blog post yesterday:

I would be very surprised, if the stock were overpriced; the bankers and the company have too much too lose. I would be equally surprised if the stock were dramatically under priced; a pop of 50% or even 25% would reflect very badly on the bankers' pricing skills. In short, this is shaping up to be a Goldilocks IPO.

We followed up with Damodaran, who was quick to pat himself on the back.

"I'd like to claim that it was some brilliant insight on my part," he said. "But this is the most telegraphed IPO of all time."

But he warned that some of the trading activity could be a bad sign for social media companies. The fact that the 10% bump faded so quickly is bad news for Facebook and other social media companies could be a signal that momentum is fading for the industry, he said.

He added Facebook is a promising company, but it will have to perform "to perfection" to justify this valuation. Anything less will be seen as a negative surprise by investors.

------------------------------------------------------------------------------

Here's a full transcript of our conversation with Damodaran:

BI: Any comment on the IPO today? We found your blog post very prescient.

Aswath Damodaran: I'd like to claim that it was some brilliant insight on my part, but this is the most telegraphed IPO of all time. The way I describe it is as the IPO that was pre-priced more than any other IPO in history. Pre priced because you had the private share market and you also had the transactions happening before the actual IPO. With the standard IPO you really don't know what the value is, you're trying to figure out what the demand and supply is. This one, they were calling it late last night. I'd have been extraordinarily surprised if they got it under by 50% or over by 20% simply because the supply and demand were set. So the initial opening was in fact very much in line with what you would expect from a scripted IPO which is what this was. But I think what happened afterwards which should have been troubling both to investment banks and to anybody investing in social media companies was how quickly that initial 10% bump started fading. In fact, the only reason I think it's up today is because the investment bankers have been providing support. And you know what? With a $100 billion dollar company the investment banks don't have enough capital to provide support for very long. So, once the support fades the question is whether it will drop to 38 by this evening, by Monday morning, by early next week, but it looks like its heading back to the offering price or maybe below, which is not good news. Not just for for Facebook investors, but as I think I mentioned in the blog, I think this is an early stage signal on how the momentum game is playing out with social media companies. So, if it doesn't go well next week I think the momentum might be fading. Which, with the momentum game, always means that you have to worry not just future IPOs, but the LinkedIns, the Groupons, the companies that are already out there that are trading and what they can get in this marketplace.

BI: Do you think retail investors made any difference, or was it canceled out by the trends you described?

Aswath Damodaran: I don't think so, I think we get swayed by the sheer numbers, but remember this is a $100 billion dollar offering, so everything is going to be scaled up about 50 to 80 times right? If you look at the retail investors in this IPO, I'm not sure the demand was much higher than the demand for LinkedIn, it just gets scared up because it's so much larger of an IPO. So I think the stories about retail investors trying to break in, trying to get the IPO at any cost were overplayed, I always thought that they were. It was a big story, it was played out everywhere but I don't think that the enthusiasm from retail investors was that much greater than other IPO, in terms of percentage demand of the total issue.

BI: What do you think of the valuation of earnings in comparison to that of other companies? is that something that's going to push the stock price down in the long run?

Aswath Damodaran: I don't think the earnings multiple means very much for a young company. I've never put much faith in whether its trading at 100 or 500 times earnings. This company is a baby in terms of operations, so earnings multiples are not very good ways of thinking about what a young growth company should trade for. But I think even if you took projected revenues or projected income, it's trading at a rich valuation. It is trading on the assumption that those billion users can be converted to advertising revenues of $50 to $60 billion sooner rather than later. That's a steep climb for any company, for a company with 4 billion in revenues to go to 60 billion. It is possible obviously, other companies have done in the past, but I think you're pricing the company to essentially be a star. I mean, its like looking at Andrew Luck and saying "hey, where are your 3 Super Bowl rings?". The guy hasn't started playing yet, but the fact that you have a lot of talent and a lot potential doesn't always translate into championships or into that type of performance. So, what I'm trying to say is that it is not inconceivable that Facebook is worth $100 billion. But I think that if you pay $100 billion, you're asking the company to perform to perfection. That's always a dangerous thing to do as an investor, because anything less than perfection is a negative surprise. Now, I think that's my concern with a $100 billion value, people are extrapolating from existing circumstances way into the future as to how successful this company is going to be.

BI: So you think that the valuation has driven expectations to the point where Facebook is going to have a difficult time meeting them?

Aswath Damodaran: The expectations have been set so high that if Facebook delivers really good results it's still going to be a negative surprise.

BI: This trend you saw where the private trading pre-IPO didn't leave much room for a bump, is that something unique to Facebook because of the popularity and hype? Or is it something that's going to continue into the future with IPOs, especially tech IPOs?

Aswath Damodaran: I think Facebook is unique, it was a quasi public company before it went public. It had all of the makings of a public company without actually trading shares on Nasdaq. So I think Facebook, because of its size and visibility, is unique. But I think this private share market is an interesting transitional thing, because you've already gone from being private, to VC, to public, now you have this intermediate stage where you're going private, to VC, to private share market, to public, which might become part of the game. I'm not sure it's going to be the only model but it is a model that actually allows some of the uncertainty to get played out in an intermediate market first before it gets to public markets. So I think that the private share market model is likely to stay and change some of the ways we think about IPOs in the future.

BI: How do you think its going to change it?

Aswath Damodaran: In a sense, what happens is that your company gets traded for about a year or two before it goes public. So you get transaction prices. These are not estimates of value that an investment banker is making, these are actual prices at which people are willing to buy and sell. Those prices are always more credible than values you estimate on paper. So if somebody actually bought a company for $1.5 billion, say Pinterest. Based on the transaction that they had a couple of days ago, the value is $1.5 billion. The reason people are willing to attach credibility to that value is that somebody actually paid based on that valuation. That's what private share markets do, they allow you to see people buying and selling at prices and base your estimates on those observed prices. 

BI: Any other comment?

It's just one company. They way I describe it is that Apple has lost almost as much in Market Cap in the last 2 months as Facebook was valued out today. About $80 billion dollars have been wiped out. So, people are acting like Facebook is the second coming or the greatest company ever. But Facebook is a small company with an outlandish profile simply because of what it is. So I think there's been too much macro storytelling about Facebook, that if the Facebook IPO went well the market would be cured. I don't see that happening. This is just one company going public. If it has any effect it's going to be immediate on the social media companies. I don't see it changing the way we think about equity markets or equity risk premiums. Greece is still going to be there Monday, even if this deal had gone great. China's slowing growth is still going to be there next week whether Facebook does well or badly. So I think we're going to return to reality next week and recognize that the world did not change.

BI: This is a reflection on Facebook as a company rather than any weakness in equity markets?

Aswath Damodaran: Exactly, the equity markets, lets face it, the equity markets have been weak, but not because of Facebook. They've been weak because of macro factors, which are what actually drive equity markets. The Facebook IPO has implications for Facebook and for social media companies. So that small subset of the market is clearly going to be affected by this IPO. If it doesn't go well I think its bad for Zynga, Groupon, LinkedIn and the other social media companies. Is it going to affect Microsoft, I don't see why. It's not bad for technology over all because technology overall is too broad. Its bad for a small subset of the market, but it has very little implication on the overall equity market because there much bigger worries on that front.

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Join the conversation about this story »

Yesterday, legendary NYU finance professor Aswath Damodaran's predicted how Facebook would probably trade.

He got it exactly right. 

From his blog post yesterday:

I would be very surprised, if the stock were overpriced; the bankers and the company have too much too lose. I would be equally surprised if the stock were dramatically under priced; a pop of 50% or even 25% would reflect very badly on the bankers' pricing skills. In short, this is shaping up to be a Goldilocks IPO.

We followed up with Damodaran, who was quick to pat himself on the back.

"I'd like to claim that it was some brilliant insight on my part," he said. "But this is the most telegraphed IPO of all time."

But he warned that some of the trading activity could be a bad sign for social media companies. The fact that the 10% bump faded so quickly is bad news for Facebook and other social media companies could be a signal that momentum is fading for the industry, he said.

He added Facebook is a promising company, but it will have to perform "to perfection" to justify this valuation. Anything less will be seen as a negative surprise by investors.

------------------------------------------------------------------------------

Here's a full transcript of our conversation with Damodaran:

BI: Any comment on the IPO today? We found your blog post very prescient.

Aswath Damodaran: I'd like to claim that it was some brilliant insight on my part, but this is the most telegraphed IPO of all time. The way I describe it is as the IPO that was pre-priced more than any other IPO in history. Pre priced because you had the private share market and you also had the transactions happening before the actual IPO. With the standard IPO you really don't know what the value is, you're trying to figure out what the demand and supply is. This one, they were calling it late last night. I'd have been extraordinarily surprised if they got it under by 50% or over by 20% simply because the supply and demand were set. So the initial opening was in fact very much in line with what you would expect from a scripted IPO which is what this was. But I think what happened afterwards which should have been troubling both to investment banks and to anybody investing in social media companies was how quickly that initial 10% bump started fading. In fact, the only reason I think it's up today is because the investment bankers have been providing support. And you know what? With a $100 billion dollar company the investment banks don't have enough capital to provide support for very long. So, once the support fades the question is whether it will drop to 38 by this evening, by Monday morning, by early next week, but it looks like its heading back to the offering price or maybe below, which is not good news. Not just for for Facebook investors, but as I think I mentioned in the blog, I think this is an early stage signal on how the momentum game is playing out with social media companies. So, if it doesn't go well next week I think the momentum might be fading. Which, with the momentum game, always means that you have to worry not just future IPOs, but the LinkedIns, the Groupons, the companies that are already out there that are trading and what they can get in this marketplace.

BI: Do you think retail investors made any difference, or was it canceled out by the trends you described?

Aswath Damodaran: I don't think so, I think we get swayed by the sheer numbers, but remember this is a $100 billion dollar offering, so everything is going to be scaled up about 50 to 80 times right? If you look at the retail investors in this IPO, I'm not sure the demand was much higher than the demand for LinkedIn, it just gets scared up because it's so much larger of an IPO. So I think the stories about retail investors trying to break in, trying to get the IPO at any cost were overplayed, I always thought that they were. It was a big story, it was played out everywhere but I don't think that the enthusiasm from retail investors was that much greater than other IPO, in terms of percentage demand of the total issue.

BI: What do you think of the valuation of earnings in comparison to that of other companies? is that something that's going to push the stock price down in the long run?

Aswath Damodaran: I don't think the earnings multiple means very much for a young company. I've never put much faith in whether its trading at 100 or 500 times earnings. This company is a baby in terms of operations, so earnings multiples are not very good ways of thinking about what a young growth company should trade for. But I think even if you took projected revenues or projected income, it's trading at a rich valuation. It is trading on the assumption that those billion users can be converted to advertising revenues of $50 to $60 billion sooner rather than later. That's a steep climb for any company, for a company with 4 billion in revenues to go to 60 billion. It is possible obviously, other companies have done in the past, but I think you're pricing the company to essentially be a star. I mean, its like looking at Andrew Luck and saying "hey, where are your 3 Super Bowl rings?". The guy hasn't started playing yet, but the fact that you have a lot of talent and a lot potential doesn't always translate into championships or into that type of performance. So, what I'm trying to say is that it is not inconceivable that Facebook is worth $100 billion. But I think that if you pay $100 billion, you're asking the company to perform to perfection. That's always a dangerous thing to do as an investor, because anything less than perfection is a negative surprise. Now, I think that's my concern with a $100 billion value, people are extrapolating from existing circumstances way into the future as to how successful this company is going to be.

BI: So you think that the valuation has driven expectations to the point where Facebook is going to have a difficult time meeting them?

Aswath Damodaran: The expectations have been set so high that if Facebook delivers really good results it's still going to be a negative surprise.

BI: This trend you saw where the private trading pre-IPO didn't leave much room for a bump, is that something unique to Facebook because of the popularity and hype? Or is it something that's going to continue into the future with IPOs, especially tech IPOs?

Aswath Damodaran: I think Facebook is unique, it was a quasi public company before it went public. It had all of the makings of a public company without actually trading shares on Nasdaq. So I think Facebook, because of its size and visibility, is unique. But I think this private share market is an interesting transitional thing, because you've already gone from being private, to VC, to public, now you have this intermediate stage where you're going private, to VC, to private share market, to public, which might become part of the game. I'm not sure it's going to be the only model but it is a model that actually allows some of the uncertainty to get played out in an intermediate market first before it gets to public markets. So I think that the private share market model is likely to stay and change some of the ways we think about IPOs in the future.

BI: How do you think its going to change it?

Aswath Damodaran: In a sense, what happens is that your company gets traded for about a year or two before it goes public. So you get transaction prices. These are not estimates of value that an investment banker is making, these are actual prices at which people are willing to buy and sell. Those prices are always more credible than values you estimate on paper. So if somebody actually bought a company for $1.5 billion, say Pinterest. Based on the transaction that they had a couple of days ago, the value is $1.5 billion. The reason people are willing to attach credibility to that value is that somebody actually paid based on that valuation. That's what private share markets do, they allow you to see people buying and selling at prices and base your estimates on those observed prices. 

BI: Any other comment?

It's just one company. They way I describe it is that Apple has lost almost as much in Market Cap in the last 2 months as Facebook was valued out today. About $80 billion dollars have been wiped out. So, people are acting like Facebook is the second coming or the greatest company ever. But Facebook is a small company with an outlandish profile simply because of what it is. So I think there's been too much macro storytelling about Facebook, that if the Facebook IPO went well the market would be cured. I don't see that happening. This is just one company going public. If it has any effect it's going to be immediate on the social media companies. I don't see it changing the way we think about equity markets or equity risk premiums. Greece is still going to be there Monday, even if this deal had gone great. China's slowing growth is still going to be there next week whether Facebook does well or badly. So I think we're going to return to reality next week and recognize that the world did not change.

BI: This is a reflection on Facebook as a company rather than any weakness in equity markets?

Aswath Damodaran: Exactly, the equity markets, lets face it, the equity markets have been weak, but not because of Facebook. They've been weak because of macro factors, which are what actually drive equity markets. The Facebook IPO has implications for Facebook and for social media companies. So that small subset of the market is clearly going to be affected by this IPO. If it doesn't go well I think its bad for Zynga, Groupon, LinkedIn and the other social media companies. Is it going to affect Microsoft, I don't see why. It's not bad for technology over all because technology overall is too broad. Its bad for a small subset of the market, but it has very little implication on the overall equity market because there much bigger worries on that front.

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Back to business. Facebook now has $16 billion in cash and a liquid stock with which it can make acquisitions. So it's doing deals.

Facebook has acquired Karma Science, a 15-person San Francisco startup backed with $4.5 million from Kleiner Perkins, Sequoia Capital, and Twitter cofounder Ev Williams's Obvious Corporation, among others, Cofounders Lee Linden and Ben Lewis announced the news in a blog post.

Karma makes a social gifting app that lets recipients choose whether to receive a tchotchke or donate the cost of whatever they were going to get to charity instead.

It's an obvious way to bolster Facebook's mobile efforts—a key area of worry for Facebook's new investors.

Interestingly, virtual gifts were an early idea for revenue that Facebook tried out, but ultimately abandoned. Sales of these gifts—in essence, digital icons that people could bestow on their friends as a means of congratulating (or teasing) them—amounted to about $10 million a year.

The payments system Facebook used for its virtual gifts became Facebook Credits, though, and that virtual currency, used in the social games Zynga and other companies build on Facebook's platform, is Facebook's biggest source of revenues besides advertising.

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Back to business. Facebook now has $16 billion in cash and a liquid stock with which it can make acquisitions. So it's doing deals.

Facebook has acquired Karma Science, a 15-person San Francisco startup backed with $4.5 million from Kleiner Perkins, Sequoia Capital, and Twitter cofounder Ev Williams's Obvious Corporation, among others, Cofounders Lee Linden and Ben Lewis announced the news in a blog post.

Karma makes a social gifting app that lets recipients choose whether to receive a tchotchke or donate the cost of whatever they were going to get to charity instead.

It's an obvious way to bolster Facebook's mobile efforts—a key area of worry for Facebook's new investors.

Interestingly, virtual gifts were an early idea for revenue that Facebook tried out, but ultimately abandoned. Sales of these gifts—in essence, digital icons that people could bestow on their friends as a means of congratulating (or teasing) them—amounted to about $10 million a year.

The payments system Facebook used for its virtual gifts became Facebook Credits, though, and that virtual currency, used in the social games Zynga and other companies build on Facebook's platform, is Facebook's biggest source of revenues besides advertising.

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BREAKING: SEC to review Nasdaq trading issues related to Facebook.

— CNBC (@CNBC) May 18, 2012

CNBC says the SEC is looking into the delays with order executions for Facebook stock today. Click here for more >

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BREAKING: SEC to review Nasdaq trading issues related to Facebook.

— CNBC (@CNBC) May 18, 2012

CNBC says the SEC is looking into the delays with order executions for Facebook stock today. Click here for more >

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Fortune

"Facebook Welcome: Will Consider Stock In Trade," the sign appears to read.

The agent, Pam Allison, is real—we called her and emailed her, but we haven't heard back. So we can't vouch for the offer's authenticity.

The listing seems real, though—the sign says "Lots Available," and sure enough, Allison's firm, Forbes Group Realty, lists four residential lots available, with prices ranging from $2.4 million to $2.7 million.

Yes, that's the price for just the land. Any house you build is extra.

The only thing that makes us suspicious: The lots are in Los Altos Hills. That's a gorgeous part of the Bay Area, and a five-minute drive from Facebook's old campus. It's 10 miles—a 20-minute drive if you don't hit traffic—across busy Palo Alto streets to get to Facebook's new bayside campus in Menlo Park.

Perfect, though, for any fully vested employees looking to retire early.

We wonder if the offer is still good, given how Facebook shares are performing today.

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Sometimes space is a premium.

Griffin's PowerDock Dual is an elegant way to dock and charge your iPad and iPhone simeltaneously.

It even includes a tray for your change and other bric-a-brac.

Price: $59.99

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Last Friday, Lot18 made a company-wide announcement.

If employees weren't happy at the young flash-sale wine site, they could resign by May 18 and receive one month's pay.

"If you're really not happy, we want to help you find something else to do," says a company spokesperson, who says the offer was modeled after Zappos' strategy of offering new hires a payment to walk away if they feel the company isn't a fit.

But in the past week, six of about 90 employees have taken Lot18 up on the offer.

In the past month, four senior executives have departed and three more employees were let go yesterday; two sections, Gourmet and Experiences, are folding.

This time last year, people were scrambling to work for Lot18. In October it raised $30 million from big-time VC firm Accel and it grossed $25 million last year.

What's going on at Lot18?

After speaking with a number of sources and the company, it sounds like growing pains.

In the past year, Lot18 shot up from 6 employees to nearly 100. With such quick growth, it's a difficult transition that many people aren't cut out for. But often, growth can be harder for startups to manage than failure.

In Lot18's case, the company's culture seems to be suffering as it grows into its awkward adolescent phase. But it's something the startup needs to figure out how to curb.

Current and former employees have described the environment as "deceitful," "inefficient," and even "toxic."

One source who was employed by Lot18 says the first few months on the job were fun.

"It was full of promise and excitement, but it quickly became a bureaucracy.  Now it's run like a mini corporation inside a small business," we were told.

"I worked at Lot18 for over a year and I can truly say that the company culture is toxic," says another. "Not to say there aren't good people there but the 'executive team' (as they call themselves) continually make poor decisions and try to spin them to look great. There's a lack of honesty and integrity."

The source couldn't pin point an exact moment when the vibe at Lot18 began to change, although he/she noted the hiring of a C-level executive, who has since been let go, as part of the problem.

As more executives were hired, a source says the company become more inefficient; he/she began to feel a lack of respect. "I felt like decisions made in a room and then the executives would walk back out and try to spin them to be positive," we were told. 

A spokesperson for Lot18 responded, "No executive is always right. The executives are making the best decisions they can at the time."

Other complaints were that Lot18 is "bleeding money" and stock options felt like "bait and switch." "No one who isn't VP level or higher is going to make more than $10,000 if Lot18 is successful," the source says.

But again, all of those things are true in growing startups.  Executives are the ones who rake in cash during an exit while other employees are just lucky to get cut a bonus-size check.

Burn rates, especially at startups with as much funding behind them as Lot18 -- about $50 million --- are high in exchange for expansion and fast growth.

And while sources said Lot18's growth has slowed, we're told revenue is ahead of where it was this time last year.

"We're growing and making changes quickly, which sometimes mean fine tuning and turning a complete 180," says the spokesperson. "That's not only startup life, that's startup life in dealing with the wine business."

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Last Friday, Lot18 made a company-wide announcement.

If employees weren't happy at the young flash-sale wine site, they could resign by May 18 and receive one month's pay.

"If you're really not happy, we want to help you find something else to do," says a company spokesperson, who says the offer was modeled after Zappos' strategy of offering new hires a payment to walk away if they feel the company isn't a fit.

But in the past week, seven of about 90 employees have taken Lot18 up on the offer.

In the past month, four senior executives have departed and three more employees were let go yesterday; two sections, Gourmet and Experiences, are folding.

This time last year, people were scrambling to work for Lot18. In October it raised $30 million from big-time VC firm Accel and it grossed $25 million last year.

What's going on at Lot18?

After speaking with a number of sources and the company, it sounds like growing pains and discord between employees and upper management.

In the past year, Lot18 shot up from 6 employees to nearly 100. With such quick growth, it's a difficult transition that many people aren't cut out for. But often, growth can be harder for startups to manage than failure.

In Lot18's case, the company's culture seems to be suffering as it grows into its awkward adolescent phase. But it's something the startup needs to figure out how to curb.

Current and former employees have described the environment as "deceitful," "inefficient," and even "toxic." They also take issue with upper management and they way news is "spun" to employees.

One source who was employed by Lot18 says the first few months on the job were fun.

"It was full of promise and excitement, but it quickly became a bureaucracy.  Now it's run like a mini corporation inside a small business," we were told.

"I worked at Lot18 for over a year and I can truly say that the company culture is toxic," says another. "Not to say there aren't good people there but the 'executive team' (as they call themselves) continually make poor decisions and try to spin them to look great. There's a lack of honesty and integrity."

The source couldn't pin point an exact moment when the vibe at Lot18 began to change, although he/she noted the hiring of a C-level executive, who has since been let go, as part of the problem.

As more executives were hired, a source says the company became more inefficient; he/she began to feel a lack of respect. "I felt like decisions made in a room and then the executives would walk back out and try to spin them to be positive," we were told. 

A spokesperson for Lot18 responded, "No executive is always right. The executives are making the best decisions they can at the time."

Other complaints were that Lot18 is "bleeding money" and stock options felt like "bait and switch." "No one who isn't VP level or higher is going to make more than $10,000 if Lot18 is successful," the source says.

Those things are true in many growing startups.  Executives rake in cash during an exit while other employees are just lucky to get cut a bonus-size check.

Burn rates, especially at startups with as much funding behind them as Lot18 -- about $50 million --- are high in exchange for expansion and fast growth.

But so much frustration among current and former employees isn't normal. It also isn't normal for seven people to quit in one week. The discord between its executives and employees needs to be cleaned up quickly.

Sources say Lot18's growth has slowed. The company says revenue is ahead of where it was this time last year.

"We're growing and making changes quickly, which sometimes mean fine tuning and turning a complete 180," says the spokesperson. "That's not only startup life, that's startup life in dealing with the wine business."

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