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The Blog Of David Marks

Ramifications of the ZNGA and FB share declines

Posted on | September 4, 2012 | No Comments

While there has lot written about the share price declines of Facebook and Zynga, I am amazed about how many stories the press is missing in this area. It took the financial press months to write about the impact of FB share declines on the Instagram acquisition, for example. But the patterns of economic cycles in Silicon Valley aren’t that dissimilar.  And there are more angles to be explored and covered by the press.

I was here in the late 90’s working for a startup that sold to a public company (yay!) in 2000 (crash!) and a whole lot of other bad things happened besides the stock price going down.

One of the things I remember was the surprise bankrupting of thousands of otherwise hard working professionals who had exercised their stock options at high stock prices, only to witness their value suddenly decline as the market crashed. To be clear: They didn’t just lose money from their stock, they were ruined because they owed the IRS taxes based on the date they exercised their stock (when it was high), but once the stock price sunk they no longer had the income simply to pay taxes on their equity.

They owed the IRS taxes for millions in gains that they no longer had, and the IRS collected from them aggressively following the stock market decline of 2000 until congress provided a temporary respite in 2008/2009.

Hopefully, this cycle of the valley does not breed another wave of designers, developers, and other professionals who suddenly find themselves flipping from paper millionaires to paper debtors overnight. Hopefully, it hasn’t already happened.

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