It was touted as the New New Thing. The much-anticipated initial public offering of Facebook (ticker: FB) on NASDAQ was supposed to be the revival of the stock market, the revival of the “publicly held” company (even though CEO Mark Zuckerberg holds 59 percent of the company’s stock, and 100 percent of voting shares), the revival of capitalism for a New Era.
It was evident from the opening bell — or, rather, the lack of an opening bell — that something was wrong. Scheduled for 11 AM (EDT), the IPO opening was inexplicably delayed a half-hour. The shares then began trading briskly on record volume, reaching an early high of $45 a share. From there, it was all downside.
Then the stock opened, and instead of soaring from the opening price of $38 up to $60 or more, as some analysts had predicted, an apparent buy order by underwriter Morgan Stanley at exactly $38 supported the price for the last hour of May 18 trading.
The details of the May 18 débâcle are clear from the Guardian’s liveblog of the IPO.
Absent underwriter support, Monday morning, May 21, the stock tanked. The finger-pointing and recriminations, which had reached a fever pitch over the weekend, started to get really serious.
What prompted Zuckerberg to offer the stock publicly was probably not a desire to help his fellow man by graciously allowing him to invest in a really cool company. Rather, he was reportedly reaching the level at which privately-held company must file an audited annual financial report (10-K) just like publicly-held companies do.
As of Friday afternoon, the market cap is $68 billion. Zuckerberg’s net worth therefore hovers around $15 billion, but reportedly, he locked in $1.1 billion early in the game by dumping his shares before they fell.
The exact details of Facebook’s IPO débâcle will likely be the province of investigative journalists and lawyers for years to come.
Facebook is reportedly looking at switching their listing to NYSE, apparently because they blame NASDAQ for the botched IPO.
Shareholders filed suit against Facebook and its underwriters (Morgan Stanley and Goldman Sachs) on Wednesday. The Securities and Exchange Commission, Financial Industry Regulatory Authority, the State of Massachusetts, and both houses of Congress (Senate Banking Committee and House Financial Services Committee) have all announced they are investigating.
Some tantalizing clues come from an early report by respected business journalist Henry Blodget.
Blodget asserts that in the middle of the pre-IPO “roadshow”, the underwriters received whispered instructions (not given to the rest of us) that the company was not going to meet second-quarter earnings targets:
The analysts cut their estimates because a Facebook executive who knew the business was weak told them to.
Put differently, the company basically pre-announced that its second quarter would fall short of analysts’ estimates. But it only told the underwriter analysts about this.
The information about the estimate cut was then verbally conveyed to sophisticated institutional investors who were considering buying Facebook stock, but not to smaller investors.
[Emphasis in original.]
This sort of “selective dissemination”, if verified, is a major no-no.
Blodget reports what he calls an unsubstantiated rumor (“scuttlebutt”) that sophisticated investors were willing to buy the stock at $32 while greenhorns were willing to pay $40, so the stock was priced at $38 in order to shear the sheep. Amazingly, since Blodget’s article with this information was published on Tuesday, May 22, the price has settled…at $32 a share. On Monday, May 21, Blodget estimated that a “fair” price for Facebook is between $16 and $24 a share.
It appears that the upshot of the Facebook IPO was this: rich, well-connected people and institutions got richer and better-connected. Regular guys got screwed. All the mistakes we made in 2001 and 2008 seem to have produced not one scrap of remorse or social conscience in anyone in the financial sector.
I think Pete Townshend said it best in “Won’t Get Fooled Again”:
I’ll tip my hat to the new constitution
Take a bow for the new revolution
Smile and grin at the change all around me
Pick up my guitar and play
Just like yesterday
Then I’ll get on my knees and pray
We don’t get fooled again
Don’t get fooled again
Meet the new boss
Same as the old boss
- Zuckerberg and Big Banks Hit with Lawsuits after Suspicious Facebook Stock Launch (musicians4freedom.com)
- On the spot over facebook IPO fiasco — The Nation Newspaper (thenationonlineng.net)
- IPO Investors Sue Facebook, Morgan Stanley (fox8.com)
- Facebook IPO devolves into epic mess (vator.tv)
- Congress Looking Into Facebook IPO (blogs.voanews.com)
- Investors sue Facebook, Morgan Stanley (money.cnn.com)
- Was Facebook’s botched IPO a conspiracy? — CNN (cnn.com)