Stick a fork in the Facebook IPO, it's done

Stick a fork in the Facebook IPO, it's done

Summary: The hype is done. Reality is here. On its first day, Facebook's IPO had to be propped up by its underwriters to stay just barely above its offering price.

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The market did Not like the Facebook IPO.

The market did Not like the Facebook IPO.

I told you so. I told anyone who would listen yesterday that investing in Facebook's IPO would be foolish and I was right. Facebook closed its high-excitement IPO day at $38.37 a share... mere pocket change over its initial price.

On Thursday, Facebook had priced its shares at $38, giving itself a valuation of $104 billion, and raising $18.41 billion. Too bad the market didn't believe that valuation. Oh sure it may look like Facebook, which was to have gone public at 9:30 AM Eastern Time, but actually only started trading on the Nasdaq under the “FB” tickerat 11:00 AM EST, but the stock actually would have dived like the Titanic if it wasn't for the the company’s 33 underwriters buying up shares to keep it afloat and above water at just over the $38 offering price,

Bullish, would-be buyers had predicted that at the end Facebook's first day as a public company that the stock would be selling at $54 a share. So much for that pipe-dream.

Facebook started tanking almost from the start, After opening at $42.05 a share, a gain of almost 11 percent, the stock started on its way down. By day's end, the only reason Facebook hadn't declined below its opening price was that its underwriters kept buying massive blocks of the stock. And, buy it they did. Facebook, according to the Wall Street Journal (WSJ), had the highest volume of any IPO in history: 460 million shares by 3:07pm EDT.

So, how bad was it? Well Mark Zuckerberg and his cronies won't be crying. They made out like bandits. As David Benoit, a lead writer of the WSJ put it, “There have been a lot of questions about how Mark Zuckerberg and the Facebook team will respond to this. They won't. They don't care. “ After all, Benoit continued, “Oh and “If you don't agree with that comment, that Facebook and Zuckerberg don't care, and think investor pressure will overwhelm him...remember he controls well over 50% of shares for voting purposes.”

I mean come on, Zuckerberg even said as they sent the IPO in its way that Facebook's “mission isn't to be a public company.” In other words, Zuckerberg got his. You? The stock holder? You're not his concern.

But, then if you'd been paying attention you'd already know Zuckerberg and company would do just fine and that your bottom line wasn't his bottom line. For Mr. and Ms. Stock Buyer, aka the poor saps who actually bought the stock, well, Dennis Berman, the WSJ's deputy bureau chief for Money & Investing tweeted it well, “Virtually every single investor who bought Facebook shares today has already lost money.” He got that right.

Why did that happen? I told you yesterday. But, to give you the quick summary, Zuckerberg is a CEO with no controls on him with barely a clue about how to run a business; Facebook has already grown as much as it can grow; Facebook has many rivals, and its users could abandon it just as fast as they did MySpace and other previous social network “success: stories. Oh, and have you heard about the $15-billion class action lawsuit for Facebook breaking wiretap laws? Oh yeah, this stock is going to do just dandy in the days ahead.

So what happens next? Bad things. Today, the underwriters were desperately keeping it up. Today, shorts couldn't real get to the stock. Next week? It's going to be ugly, really ugly.

Related Stories:

Facebook closes at $38 on day one

Zuckerberg: “Our mission isn’t to be a public company” (video)

Facebook hit with $15 billion class action user tracking lawsuit

Is Facebook’s IPO an exit strategy?

Don’t be a Facebook IPO idiot

Topics: Banking, Legal, Social Enterprise

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36 comments
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  • You're right, Steve. Zuck could use some adult supervision.

    Now that the Goog twins are all grown up, maybe Eric Schmidt should apply for a baby-sitting gig over at the Faceplex, eh?
    Userama
    • Schmidt is a clown. As for the twins being grown up, HA! One look at Pages

      performance on the stand is all you need to see that he has completely sold out his integrity. These guys didnt have to earn their money and never will so its very unlikely that they will ever grow up. MZ is right there with them though.
      Johnny Vegas
  • Remember that crazy "Zuckerberg > Jobs" claim?

    FAD is like what FAD does.
    LBiege
    • ZDnet won't let me put in enough "less than" symbols......

      ...to express how much less than Jobs is MZ.
      Userama
  • Facebook IPO marred by NASDAQ technical glitches

    [i]Oh sure it may look like Facebook, which was to have gone public at 9:30 AM Eastern Time, but actually only started trading on the Nasdaq under the ???FB??? tickerat 11:00 AM EST[/i]

    Why was Facebook's IPO trading delayed? Apparently, there were various "technical glitches" with NASDAQ's electronic trading system that hampered trading throughout the day. Glitches included a problem "delivering trade execution messages" and failure to provide automated "order status" reports. An online broker rep referred to it as "a crisis meltdown". More here:

    "Trading Glitches at Nasdaq Mar Facebook IPO
    http://finance.yahoo.com/blogs/daily-ticker/crisis-meltdown-nasdaq-mars-facebook-ipo-202529614.html

    And what OS does NASDAQ use? Linux, of course:

    "Linux at NASDAQ OMX
    https://lwn.net/Articles/411064/

    Could Linux have put a damper on Facebook's IPO? Stay tuned as the SEC will be looking into the matter:

    "SEC to review Nasdaq glitches in Facebook IPO
    http://www.latimes.com/business/technology/la-fi-tn-sec-probe-nasdaq-glitches-facebook-ipo-20120518,0,4327114.story
    Rabid Howler Monkey
    • Nice to hear from a banker.

      The FB share is still junk though.
      But nice attempt at diversion,
      for an amateur.
      Bozzer
      • RE: Nice to hear from a banker.

        Steven conveniently left out any reference to the technical glitches that occurred at NASDAQ which adversely impacted trading on the day of Facebook's IPO. And given how Steven dragged Microsoft and Windows through the mud for the London Stock Exchange debacle, I thought it only fair to make it known that NASDAQ runs on Linux. Did you note the quote "a crisis meltdown" in my post?

        However, I did not blame Linux for NASDAQ's technical glitches. Instead, I merely asked a question about Linux's role. It may turn out that Linux was a factor. Or not.
        Rabid Howler Monkey
  • Mr Vaughan-Nichols, you forgot to mention the part where

    underwriters buying up shares to keep it afloat is not an unusual occurrence, many of the larger companies still in existence today actually had the same thing happen to them when they first went public.

    Also, did you not say that General Motors pulling out indicated they saw something others did not, that Facebook Jumped the Shark?. I just finished reading that General Motors pulled out of 2013's Superbowl adverstising.

    Do I take it you feel that the Superbowl in 2013 will be the last year for it? GM pulled their advertising money, so that must be the case.

    Now, I share no great emotion over Facbook, but I do not harbor hatred as you do, as
    I believe your hatred for Anything But Linux clouds much of your life in a negative way.
    Yes, I believe the stock will drop next week, but over time will rise above the current 38 dollar mark. The difference being that Facebook will not be grossly overvalued as Google is by this time next year.
    Tim Cook
    • RE: Mr Vaughan-Nichols, you forgot to mention the part where

      [i]I believe your hatred for Anything But Linux clouds much of your life in a negative way.[/i]

      That's what makes Steven's animosity towards Facebook so interesting. Facebook is built with a host of open-source technologies: Hadoop, Cassandra (developed by Facebook engineers and donated to The Apache Software Foundation), Apache http server, Nginx, and [u]Linux[/u], just to name a few.

      Facebook's 'crime', apparently, is competing with Google and partnering with Microsoft. [Recall that Novell (now Attachmate) was (is) partnered with Microsoft and that SUSE competes with Red Hat.] As far as privacy violations go, both Facebook and Google are required to submit to 20-years of monitoring by the FTC.
      Rabid Howler Monkey
      • You two lack intelligence

        So not buying into an obvious scam is somehow in your minds some anti-open source conspiracy.

        Who cares about the fact that Facebook has yet to prove its worth and that the company's business model is relying only on being the current internet FAD. Who cares that the numbers that were thrown around were totally bogus and unrealistic.

        If not being a complete m0r0n and not buying into the hype is being anti-open source .... then I guess intelligent people are not open source users .... according to 1d10ts.
        wackoae
      • And you, wackoae, lack the ability to read and comprehend

        @wackoae wrote:
        [i]So not buying into an obvious scam is somehow in your minds [u]some anti-open source conspiracy[/u].[/i] [Emphasis added.]

        My post clearly shows Facebook to be a company that both uses and contributes to open-source software (just like Google). Where on earth do you get "anti-open source"?

        I believe that both Facebook and Google scam their users (read consumers). Are Google+ and other Google services really any better or worse than Facebook? Note that Google has restructured their company around Google+. Thus, my comment about Facebook and Google privacy violations and 20 years of monitoring by the FTC.

        As far as investing goes, I wouldn't go near either Facebook or Google. I dislike both companies business model. And open-source has nothing to do with it.

        P.S. It's quite clear on Steven's Networking blogs that he is pro-Google and anti-Facebook.
        Rabid Howler Monkey
      • Agree with the gist but how is this different to google's IPO?

        SJVN is right that the facebook IPO, its massively overvalued due to the profits its produced and the risk that someone comes along with something better and then junks facebooks value.

        However when it comes to voting shares I have to ask how this is different to googles setup? Aside from the fact its 1 person rather than 2 this appears to be exactly the same way google did its IPO and yet I don't recall any criticism of this
        the.nameless.drifter
    • Overpriced

      [QUOTE] Do I take it you feel that the Superbowl in 2013 will be the last year for it? GM pulled their advertising money, so that must be the case.[/QUOTE]

      I think that's an indication that companies are starting to believe that Superbowl advertising time is too expensive for what you get in return. It doesn't mean the end of the Superbowl, but it does mean that if others follow suit Superbowl advertising time might have to get cheaper.

      The net result? Well, maybe instead of having to endure Madonna we'll have to endure Cindy Lauper half-time show.
      dsf3g
    • Google overvalued?? You've got to be kidding.

      Evidently you do not know much about how markets work. "Overvalued" is an understatement. At $38.00 a share Facebook was over 100 times its price-earnings ration which is practically a record for a Nasdaq (and most other) IPO's. As for Google being overvalued, Googles revenue per user is $63.00. Facebook's current revenue per user is at most $9.00 per user and has been declining in recent months. Notwithstanding the 2008 financial meltdown, most big investors---large hedge funds, institutional investors, big equity firms----are not all complete idiots (this of course does not include Morgan Stanley, JP Morgan Chase and the other banks that underwrote the Facebook IPO, got in the the ground floor and made tons of money). Most everyone else in the serious part of the financial sector has looked at the numbers, done their "due dilligence" and risk assessment and what they see is the lack of a realistic profit growth model for Facebook and are consequently taking their time. They know full well that tens of millions of users per day is not the same thing as being able to monetize those millions of users. They know that only a tiny fraction of Facebook users ever click on a sponsored link let alone buy anything. People sign on to Facebook to see what their "friends" are doing and to tell their friends what they are doing unlike Google where people are actually looking for something be it information about a subject or about a product they might want to purchase.
      roma1994
  • How to determine the alignment of any tech company reported on in ZDNet

    Just look at which talkbackers comment favorably or not.
    John L. Ries
  • Well done

    If I'm not mistaken, it is the job of Facebook's investment bankers to price the IPO shares such that Facebook itself gets every possible dollar. When they do their jobs right, we see what we just saw here: no big climb over the opening share price.

    Buying IPO shares after they become publicly available is nuts. If you can't get in on the seed rounds or get any "friends and family" shares before IPO day, you should stay away for a good six months. Let other people find out The Hard Way what the company is worth.
    Robert Hahn
    • Balance

      The investment bankers have to play a balancing game: they need to price them so that Facebook gets as much money as it possibly can, yes, but they also need to price the shares at a level that will entice investors to buy them.

      The feeling that's starting to emerge is that the bankers priced the shares too high to begiin with. Since much of their profits depend on getting hold of shares before most investors can and riding the price surge that follows the IPO, the sense here is that they grossly over estimated investor interest in a stock whose price already had a 10,000% earnings growth baked in. As a result they madly bought up shared just to keep their initial investment from tanking.

      I sincerely hope some of these guys plays end up making J.P. Morgan's recent $3 billion dollar loss (or has it been revised up to 5 billion?) look like a good deal in constrast. Wall Street profits are largely built upon superior access to markets and a willingness to screw the little guy.

      (LOL, Just had to update my post when I realized that my claim that the price refected 1000% earning growth was wrong. That would be a 10 to 1 PE ratio. This was actually 10,000% predicted earnings growth. Just serves to highlight how silly the initial price was.)
      dsf3g
    • I agree with your comment but disagree with the "flop" part of the article

      The IPO was not a flop because it accomplished exactly what the company was after i.e. capital. It got $18 Billion. That is a very successful IPO. Now is FB overvalued? Probably. Will I invest? No!
      DevGuy_z
    • You've hit it on the nail

      You are so right. IPO pricing is a bet. Retail buyers are the people who enables the initials to cash out. If you can't get into the game at the start, you are fodder. Thus it is a closed game.
      Backbutton
  • This is a really good read for me, Must admit that you are one of the best

    Its like you read my mind! You appear to know so much about this, like you wrote the book in it or something. I think that you could do with some pics to drive the message home a little bit, but other than that, this is great blog. A great read. I will certainly be back.
    http://www.ukkarenmillensale.com
    rayban5711