Are secondary markets to blame in Facebook IPO failure?

Are secondary markets to blame in Facebook IPO failure?

Summary: It's clear that "smart money" in secondary markets set the pricing of Facebook shares...


for Facebook [$FB] yet none have mentioned the role of secondary markets. In these private stock exchanges, Facebook was trading at around $42 a share in the weeks before the IPO.

Interestingly, Facebook set the opening price at $38 hoping for about a 10% pop on the first day, which would bring it up to $42 at close.

Since secondary markets are the playground of acredited investors, it's "smart money," and much of it institutional, it would be a fair assumption by Facebook that a $38 price was in the right ballpark.

However, this means that the trading in secondary markets essentially set the IPO price, leaving little wiggle room for Facebook.

Will secondary markets become more important in pricing future IPOs? Or will private companies choose to limit secondary market trading as much as they can, to avoid what happened with Facebook?

It's ironic that Google [$GOOG] carefully managed its IPO and snubbed much of Wall Street so as to not reward clients of investment banks; and to price fairly at the outset so that there would be as little pop as possible, yet it closed 18% up. Facebook went with the investment banks and took their advice and ended up with flop.

Topic: Social Enterprise

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  • Who is that smart guy in the secondary market?

    Who is ready to pay $42 a share? May be he meant $42 for the entire company?
  • What failure?

    I'm having trouble understanding where the "failure" was. Facebook got $38 per share, didn't leave any money on the table, and raised billions which they now get to manage.

    Is pricing your IPO so that you -do- leave money on the table considered "success"? Why?
    Robert Hahn
    • If the price was right then why is it $32.98 today?

      Just asking...
      Solid Water
      • Be safe

        Look, if you're one of those people who thinks that humans should know the future in advance, and that therefore investments should only gain in value, I can't help you out. Keep your savings under your mattress, or buried in the ground until you realize that no one --absolutely no one -- really knows for sure what they are doing. It's all guesswork. All of life.
        Robert Hahn
  • All trades that happen after the initial purchase are secondary market

    What they saw was more of the manipulation that has happened. This is a classic pump and dump of a worthless company. It's no wonder bitcoins got off the ground with this kind of non-sense happening. Public scams conducted by the rich. I guess it's not illegal if you're rich.
  • Me I'm still in awe that people thought facebook had such

    a high value. Based on what exactly? Everytime this subject came out I was posting my doubts and many said I was not seeing it... To which I whole heartedly agree cause I still don't see it. It's not that I don't think Facebook has value but so much no way no how.

    Pagan jim
    James Quinn
  • The Real Market

    75% of all stocks are owned by banks. Yes, 75%. If you control that much of the market, I would think they would set the price.
  • Facebook IPO failure

    The Facebook IPO was not a failure. It's purpose was to raise capital for Facebook. This it did, to the tune of some $18 Billion, and therefore, the Facebook IPO was a success.

    It was only a failure for those who wanted the stock price to appreciate. Since Facebook stock was way overvalued insofar as the price-to-earnings ratio, the stock price had nowhere to go but down to a realistic, market-driven value.

    The pre-IPO stock price was not reflective of market value.