Facebook Shares Retreat Below IPO Price

First time accepted submitter gtirloni writes "Just days after wrapping up the biggest initial public offering in Silicon Valley history, shares of Facebook slumped 6% and tumbled below their issue price on Monday, a troubling signal for the newly-public social network. Facebook broke below its $38-a-share issue IPO price in the wake of a highly-anticipated offering that raised more than $16 billion, the second-largest domestic IPO after Visa's 2008 debut. Shares of Facebook were recently off 6.44% to $35.72."

Comments

Troubling signal, why?

[partofme]

I can't really understand why you're saying that share price going down on IPO is a troubling signal. During normal operation, sure, but on IPO? It just means that the company didn't undervalue themselves and sell their shares at too low prices.

If I were a shareholder before the IPO and the per share price would had doubled, that would mean half of my potential profit and ownership lost. It's not rocket science. Remember that Facebook fixed their shares price like 8 times to get it to correct level - I'm sure there was tons of people at Facebook trying to evaluate the right price during the last months.

So all in all, it's better for shareholders and Facebook that the price went down instead of up. Otherwise it doesn't really matter. Especially since they already raised that $16 billion on Friday.

So what's the troubling part? I cannot understand.

Re:Troubling signal, why?

[SimonTheSoundMan]

They would go down further if it wasn't for underwriters propping it up, that's the troubling part.

Re:Troubling signal, why?

[polar red]

didn't undervalue themselves

16 billion is about $18 per user. that's ridiculous.

Re:Troubling signal, why?

[polar red]

that's ridiculous.

but only the people willing to pay that much are ridiculous. Nice job Marc. I would like to pull off the same stunt.

Re:Troubling signal, why?

[jellomizer]

However people were hoping to see Bubble like growth. We think back of the good times during the 1990's where a Web Developer who just used Front Page would get a low 6 figure salary. Getting paid in Stock Options seemed like a good deal. Then we had the Pop where a lot of these jobs were outsourced. Stocks dropped, where a lot of these company who did nothing went out of business, and the ones that were over valued dropped a lot.

The companies that took on more modest growth, when times went bad went to a modest declined, they didn't have to layoff thousands of workers, they operated in their means. If Facebook doesn't plummet or shoot crazy up, then it was priced fairly and both sides got a good deal.

Re:Troubling signal, why?

[fuzzyfuzzyfungus]

It appears to be an article of faith among the professional chatterers of the market-news media that THE NUMBERS MUST GO UP!!!!. If interrogated directly, of course, they will concede that 'the market' sometimes requires that the numbers go down, as folly and weakness are eliminated; but day-to-day this saddens them.

Just look at the body of media drivel generated by the recent deflation of the American housing bubble: having a place to live became more affordable than it had been in decades and every last talking head and politician available began screaming about the 'housing crisis'...

There probably are genuinely analytical analysts(who know enough to keep their mouths shut and make real money); but the ones bloviating in public appear to be little more than cheerleaders at a sort of stock market pep rally.

Re:Troubling signal, why?

[Anonymous Coward]

So, the continued game of 'smoke and mirrors' persists on Wall Street.

Tell me again why I should join a game that is inextricably rigged against me, the small-money investor looking for long-term growth?

As an FYI, I don't invest at all.

Re:Troubling signal, why?

[Anonymous Coward]

The user retains the right to unilaterally revoke that license if they delete their account, though.

Re:Troubling signal, why?

[Zironic]

If they tried to do that, EU would probably destroy them, literally by liquidating the company. They'd run afoul of so many European laws that just listing them would take the better part of a lawyers career.

Re:Troubling signal, why?

[rb12345]

didn't undervalue themselves

16 billion is about $18 per user. that's ridiculous.

It's an improvement on about $30 per Instagram user...

Re:Troubling signal, why?

[robthebloke]

but only the people willing to pay that much are ridiculous.

link worth reading

Company filings after the market closed on Friday night however revealed the extent to which the banks who led Facebook’s initial public offering - in which $16bn of shares were sold to new investors - were forced to move in to the market and buy shares in order to keep the price above the $38 level. Morgan Stanley, Facebook’s lead financial adviser, ended the day with 162m shares, worth $6.16bn. Other banks including JP Morgan and Goldman Sachs also bought shares, ending the day with $3.2bn and $2.4bn holdings respectively.

So 3 banks have purchased $11.76 bn of the $16bn total facebook stock available to prevent the share price tanking. Need I remind you of their past successes:

JP Morgan: $25 Billion bailout from US tax payers.
Morgan Stanley: $10 Billion bailout from US tax payers.
Goldman Sachs: $10 Billion bailout from US tax payers.

All those banks have repaid the bailout loans (from what I can figure out?), but it looks as though they are each going to make a fairly big loss on this IPO. That's not exactly a good sign that things have changed for the better imho....

Re:Troubling signal, why?

[MaWeiTao]

You seem to believe that the stock market is a zero-sum game. While I agree that there are plenty of people gaming the system it doesn't mean you lose if you're not one of them. If you know what you're doing you can make money, you simply wont make quite as much as those guys.

Re:Troubling signal, why?

[pegr]

>Facebook is not a company known for it's good faith or concern for their customers.

Wait now. If you are a Facebook user and you don't pay them anything, you're NOT the customer, you're the product!

Re:Troubling signal, why?

[dgatwood]

Yeah, I bought a few shares just because I figured if it hadn't collapsed by the end of the first day, there was a chance that hype might drive the price up. That said, I only bought a few shares because when I calculated what I thought the IPO price should be, I concluded that its maximum sane starting point was only about $12, and realistically more like $5–6.

I'll buy more shares when it hits three bucks, because at that point, it will be a strong buy.

Re:Troubling signal, why?

[V-similitude]

Oh come on. People need to stop citing "bail out" money paid to these banks (well, JPM/GS at least, I'm not so sure about MS). JPM didn't want the money, they didn't need the money, the government forced them to take the money primarily to make it not look so terrible for the banks who did need the help. The strong banks, JPM/GS/etc. (at the time anyway), paid it back as soon as they were allowed to, with interest. Not to mention, in JPM's case, they actually bailed out the taxpayers to some degree, by agreeing to buy Bear Stearns.

Also, these banks are not taking loses on the IPO. Their clients are. They got people to buy from them at around $38, but they didn't hold onto very much, if any, of the stock themselves. Their loss in this case, is to their reputation, since they basically convinced their clients that this was a good price.

Though I don't disagree with you that things haven't really changed for the better, given JPM's recent (unrelated) losses

Re:Troubling signal, why?

[Zaphod The 42nd]

Facebook gets about $3-5 per person, per year. Which really isn't that much. Google makes much, much more per user, but still nothing crazy.

Revenue per user

I have no clue where the profit is gonna come from to back this up, and I don't think anybody else does either. Facebook's IPO is over 100x their last year's income, which is pretty scary.

The worst part of this is how facebook's quality is going to go massively downhill now as they try to monetize it and squeeze more profit from ads, which in turn will drive users away, requiring them to make more and more money per user, which... Yeah. bad.

Re:Troubling signal, why?

[rhsanborn]

If they personally purchased the stock, then they lost everything in fees. If they bought on behalf of investors, then the investors lost money and the bank made the fees from FB plus the fees from the investors.

Re:Troubling signal, why?

[localman57]

http://cryptogon.com/?p=29242

See the video replay of High-Frequency-Trading manipulation of the 38 USD. They call it a "Tractor Beam" Ha! http://www.youtube.com/watch?v=KrkH_WQxxEA

This video is worth watching for the lesson it presents. The lesson is not about Facebook, or IPOs, or anything as specific as that. It's a detailed analysis of what's happening to the stock price as computers manipulate millions of shares of the stock. This guy can talk for 8 minutes (and it's an interesting talk) about something that took about 3 seconds to occur. If you ever had doubts that the long term, buy and hold investor is a sucker in today's markets, this is a video to watch.

Re:Troubling signal, why?

[Anonymous Brave Guy]

Because at the very least, you'll be likely to beat inflation with your investments.

Is that even true any more? You can certainly cherry pick market indices and year ranges where they outperform any mainstream interest-bearing savings account, but if you hit any of the black swan periods you're going to suffer badly. Short of some sort of dubious bubble, which isn't inconceivable, it could be a decade or more before anyone who had invested before the recent crash gets back to the same level they would have been at without that crash. That's assuming that the markets do pick up some time in the near future, they sustain an above average growth rate until they've made up any remaining shortfall from the down years, and nothing else happens to cut everything in half again. I live in Europe, so I'm not convinced at all that we're out of the woods yet.

All of that is considering investing in a general market tracker of some sort. Obviously you can potentially do much better if you invest in the right stocks individually, but plenty of professionals who do that still don't beat throwing a dart at the FT listings page. It's a fool's game for small investors who aren't willing to spend a great deal of time learning about both the mechanics of financial markets and the specific investments they're considering making.

If you want to keep your money worth the same amount in real terms over the long run, are you better off just buying gold these days?

Re:Troubling signal, why?

[natophonic]

Ho ho ho! I'm thinking Goldman Sachs ability to repay in such a timely manner might have a little something to do with the $182B bailout to AIG, seeing as GS was AIG's biggest customer of its credit default swaps, and those AIG stakeholders were made entirely whole, whereas as of earlier this month, AIG still owes about $45B to the US taxpayers.

So, which is it?

[A10Mechanic]

Is it the normal IPO rebound effect, like a rubber band snapping back, or is it like the realization of millions of investors trying to put a valuation on a company that has no tangible assets? Or is there another conclusion?

If it were trading at google's P/E

[ameline]

It would be trading at under $8 per share.

I would not be at all surprised to see it in that vicinity in the next 6 months.

What will Facebook ever give back?

[MarkvW]

Does anybody realistically believe that Facebook will EVER pay its investors a meaningful dividend? HELL NO!

Facebook is just a game of stock market musical chairs which foolish investors will dance around until it is replaced by the next big thing.

Good luck, day traders!

Re:What will Facebook ever give back?

[swillden]

Does anybody realistically believe that Facebook will EVER pay its investors a meaningful dividend? HELL NO!

The classical theory of stock valuation is that the current value of a stock is the net present value of its future dividend stream, but there are plenty of companies out there that don't pay dividends, and don't ever plan to pay dividends and they're not worthless. There are plenty of investment properties which are bought and sold on the price change, not for any dividend or rent stream. Much real estate investment is like that: It's perfectly reasonable to buy a piece of property because you expect its value to appreciate, not because you anticipate any direct revenue from it.

Determining a value for stocks that don't pay a dividend isn't even much different from those that do. In both cases you look at the book value plus estimates of future profits. In the case of dividend-paying companies, those future profits are expected to be paid out to shareholders. In the case of non-dividend companies, they increase book value.

Note that I'm not arguing that Facebook isn't overpriced. I think it is. Significantly. But not because they're not going to pay dividends.

When doing it right is wrong

[Quila]

These reporters are just being sensationalist, manufacturing stories to get page views off this big IPO.

Truth is as you say. I think it shows a great sense for rational valuation if after the first day the stock stayed within 10% of its opening either way. Much more shows dangerous wild speculation by traders, or the company completely blew their valuation estimates.

Re:When doing it right is wrong

[Dcnjoe60]

It stayed within 10% because JP Morgan was paid $177 million to insure the stock. a bad bet for them; who knows how much they stand to lose now that they've had to buy so much FB stock to cover the policy? They're the big losers here, not the FB guys who dumped half their insider stock on Friday and made a killing.

There is a reason why after the depression that banks were not allowed to venture into speculative markets and real estate and the like. Then in the 90s, most of those laws were rescinded under the guise that regulation was hurting the banking industry. Now that a new generation has had experience with what happens when somebody your trust gambles with your money, maybe we'll go back to regulating banks so that they don't speculate on markets and insuring stock issues. Just a thought.

Re:Not surprising

[dkleinsc]

Absolutely - as far as I can tell, Facebook has now achieved everything it set out to do:
1. Make Mark Zuckerberg extremely rich.
2. Help Mark Zuckerberg find a smart and hot woman to get it on with.

Re:Not surprising

[HornWumpus]

I'm betting he got married on the day of his highest net worth.

With a good lawyer she could wind up paying him. Wealth growth during the marriage is sure to be a negative number.

Re:$18/user?

[tsa]

Who cares?

Just a sign of an out of control economy

[SmallFurryCreature]

As others have calculated, the valuation of Facebook if divided by the number of users is pretty damn high, especially since it isn't actually selling anything to their users. Rather it sells its users. To people who are used to buy in very large bulks to the tune of maybe a fraction of a cent per user.

You might THINK TV advertising is big and moves a lot of money, and you be right. It is BIG but so is the industry. TV's are everywhere and everywhere they sell Coca-Cola, yes even in places where people are dying of thirst. It is one of the funniest things you ever encounter, well, if your sense of humor is sick, that you can go within walking distance of people dying and being dead beside the road and see advertising for luxury products. That is why advertising is big, IT IS EVERYWHERE. It operates how on tiny amounts, just is massive bulk.

And Facebook, as alien as the thought might be to its fans, does NOT have bulk. Or rather, the one thing it has bulk off, nobody wants. LOTS OF SMALL GROUPS. The problem with advertising on the internet is that it is to specialist. There is an internet forum out there for furry, star trek, romney voting black hindu linebackers... but who on earth has a product to sell to them?

Facebook users are not a meaningful demographic. Precisely BECAUSE facebook knows so much about you, you loose value as a product for advertisers. If you are not their target, they don't want you. So from its not all that many users (compared to say viewers world-wide of a bond movie, or a Soccer championship, or the Olympics) only a very small subset is of interest to any particular advertiser. TV is much easier, they don't know who the fuck is watching their commercial but they know it is a lot so it is like shooting fish in a barrel with a needle, or something like that, they understand the metrics know how to play it.

Don't believe me? Fine, try this. DISCUSS, ANY single facebook advertising campaign that you talked about at work with a co-worker. Any? Even one? Okay... now name a DOZEN tv ads that you talked about with a co-worker. See?

BUT the people in Wall Street are desperate, they need SOMETHING to speculate in. Many were buying Facebook stock in the hope of the price immidiately going up and selling it as soon as possible. They were not investing, they were not looking at Facebook as a long term business, they just wanted to cash in quick on stock selling low and going up. And it didn't. Mostly because there were no long term investors so a lot of the buyers had no choice but to sell because they had bought with borrowed money.

But what else to speculate in? Real investing, putting your money down in a business in the hope it slowly grows over many years and then pays you back, that takes to fucking long and anyway, invest in what? Nobody is doing anything anymore, it is almost like all theother assholes with cast are just waiting to speculate or something!!!

So they saw Facebook, thought, this is going to go up because if they didn't, they would have nothing and so made up the scenario's in which Facebook would go up and they could all get rich quick and someone else would do the real investing in whatever Facebooks business plan happens to be.

This is what happens when you let gamblers run your economy.

Banks are welfare leaches.

[Colin Smith]

Goldman Sachs, Morgan Stanley, JP Morgan, Citi are at the top of the list of banks making use of Federal Reserve loan facilities. If they are and were so healthy why are they at the top of the list of heavy users?

http://projects.propublica.org/tables/treasury-facilities-loans

The simple truth is they did need the money and would have failed as spectacularly as Bear Stearns and Lehman without it. I'll just point out that the Federal Reserve was created for exactly the purpose of transferring risk to taxpayers by exactly the banks who made most use of it.

Oh and JP Morgan did everyone a favour for taking Bear Stearns over a $2 a share, financed again by the Federal Reserve? Oh please.

JPM made use of 160 billion worth of Fed loans

[Colin Smith]

They were desperate for it. Just like the rest.

I'm all for hating the banks, let's just hate the right banks.

All bankers are parasites.

Hope This Helps with your understanding of the nature of banking.