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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."
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.
Looks like it actually got down to -12% within an hour of opening. From the sounds of it, NASDAQ royally screwed up this IPO and there's probably unexecuted orders lying around which is likely going to result in some very hilarious realized losses. Look, if Goldman Sachs is securing hundreds of millions of dollars in shares ahead of time and cashing out during a tech IPO, you as an individual are probably already too late the party. Of course, that's investment advice from an anonymous idiot on Slashdot but it looks like they will be one of the few parties laughing all the way to the bank (as usual).
My work here is dung.
At this point, Facebook has nowhere to go but down.
Summation 2
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?
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.
Ian Ameline
I wouldn't describe -11% as not moving. Good for Facebook the company and the previous owners, bad for investors.
Blatant Advert: Android Apps!
This stops the chance of another dot-com bubble forming. Facebook was overvalued, if they can very quickly show how they can create an increase in revenue they'll be fine and continue to strive though.
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!
This result was expected based on what happened on Friday. It was reported that the underwriting investment banks were propping up Facebook's share price on Friday to keep it above the IPO price of $38, so as to help their clients avoid losing money on the first day. Now that we're past day 1, the banks have stopped buying shares at the apparently overvalued price, which makes sense -- after all, if the banks are buying at $38, then they stand to lose money when they sell at a lower price in the future. In other words, Facebook should've already been trading at something less than $38 on Friday, but it wasn't because the banks wouldn't let it.
My userid is prime!
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.
zerohedge has been crawling with a graph of myspace use, showing its vaguely bell shaped rise and fall, overlaid with facebooks rise, now topping, and presumably much like myspace, falling to zero in a couple years.
What will the next bubble be in? We've done housing, doing FUD security theater, doing higher education, doing internet anti-social media... my guess is food is the next bubble? In the tech field I'm thinking the natural bubble after cloudiness is true parallelism, local or remote doesn't matter, the point is its gonna be erlang (or similar) on 100000 cores.
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
If the stock moves significantly up after the IPO, this means that the company did not sell enough stock.
Instead, if the price remains flat, or even goes down, this says that the IPO was priced perfectly: all the revenue from the IPO goes to the company and/or the insiders selling the shares, rather than the IPO bank backer's insiders who got the inside track on the "hot IPO"
We should have all IPOs be like this IPO.
Test your net with Netalyzr
ideally to fund expansion
That's the problem, what do they expand into?
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
Enlightening article: http://atimes.com/atimes/Global_Economy/NE22Dj03.html
A Facebook page is a pre-arranged display window whose purpose is to block our gaze from the real person behind it.
That is Facebook's curse.
It attracts hundreds of millions of users by providing them with a platform for narcissism and the means to lie about themselves more persuasively, but it hopes to make money by learning what it is that they really like, the better to show them advertisements.
'nuff said :)
http://opencm3.net, http://www.nongnu.org/gm2/
Sure Goldmans etc got their money, but it means the ordinary investors get ripped off.
Mind you, more fool them. The IPO was clearly smoke and mirrors, they were to be shareholders who can't vote and the $1 billion (mostly in FB shares) for Instagram was obviously to make the shares look like they were worth that using the third party false validation trick.
So they were suckers and they got robbed. Tough.
Maybe someone should poke it.
I've been saying since they announced it, it's going to go from $38 to $3.8 rather quickly.
Facebook doesn't produce anything, it doesn't sell anything, and there's no charge to use the service.
Why exactly would I want to invest any amount of money in it?
What do I know, I'm just an idiot, right?
Here's the deal, the stock price was way over priced. If they had priced it lower then the underwriters wouldn't have had to step in repeatedly to prop it up in order to maintain the $38 share price. Without the intervention of the underwriters the stock would have plummeted.
What we're seeing is the beginning of a market correction that will adjust the price to a real world value. The underwriters can only support it's value in the market for so long before they are no longer able to keep the artificial value where it's at.
At $38, Facebook's price-to-earnings ratio was more than four times Google's. Google's posting revenue and profit than were 10 times higher than Facebook. Google also had a long term strategic plan for the money they raised from their IPO. As far as I know Facebook had no public plan for the use of the funds raised during the IPO, it seemed more like a get rich plan for the people (and banks) who held stock.
Long term I'm sure Facebook will rebound in the market, but it's going to be months before the actual price of the stock has been determined by the market and we know for sure.
the stock is being publically traded - so the price going down means that there are more "sellers" than "buyers" at the moment - what will be interesting is where the stock ends up in a year
remember, the underlying value of the company in question is a big factor in stock valuation, but the stock market is not a rational place, and people buy and sell for any number of reasons.
Facebook, Inc made its money on the i.p.o. (earlier posting said $16 billion) - the day to day fluctuations of the stock price don't directly impact its "bottom line"
for those who remember the dotcom bubble - the status symbol at that time was how much the stock price would rise, over the i.p.o. price ("Revolution OS" has a few examples of this near the end). I specifically remember RedHat's initial offering
notice that RedHat only offered 6 million shares (today RedHat, now RHT, is slightly above that price) - I haven't checked the numbers but if the $16 billion dollar number is correct then FB must have offered over 421 million shares...
in any case I'm happy to see the Mark Zuckerberg could FINALLY afford to get married - it is so hard to support a family on a couple million dollars (estimate is that he is now the 29th richest human being on the face of the earth)
It ain't what they call you. It's what you answer to. http://mylyceum.us/
Facebook has many things of value, the Facebook users. The problem is that Zuckerberg seems to have no clear plan on how to capitalize on what he has. Thus the business plan of the company is more then a little vague. What's more, since Zuckerberg kept more then 60% of the voting shares for himself, the rest of the stock holders really get no say in what the company does. This, coupled with large accounts such as GM pulling out of their Facebook marketing plans and the company is looking a little uncertain. If Zuckerberg comes up with a means of monetizing the Facebook user base beyond data mining and expands into the Asia markets, then the company will do well financially.
"Have you ever thought about just turning off the TV, sitting down with your kids, and hitting them?"
if facebook has been a good investment. All sorts of sounding off by ''experts'' on the basis of some volatility in the first few days of trading is nothing but hot air. Only the future can tell, I am not arrogant enough to pretend that I know & I can't remember where I put my crystal ball.
Who cares? Zuckerberg and the big investment banks who launched the IPO have gotten paid. Only people who stand to lose now are the little guys who don't matter.
Yes, something is always "perfectly priced" when the buyer loses 10% of their equity in one day! A tech IPO like this is as much about "raising money" as man boobies are for making milk. It's about MAKING money, have you heard what they needed the investment cash for? How are they going to grow an already stagnant business model? Lobby congress to require cityville to be installed as an ignition interlock device? This isn't finance nerds, it's marketing, thinly veiled if at all. (not an investor, just pointing out the emperors/clothes thing)
People won't care about whether or not you respect privacy. If they can't pick strawberries, you're doomed.
Perhaps many of you were too young to remember the dot.bomb era when shares rose hundreds of % not long after the IPO. The common reaction eventually became, why are the companies leaving so much money on the table? Why are their underwriters not advising a higher initial price?
So here we have FB apparently finally finding a price at which the shares are fuly valued, or reasonably close to being so (or perhaps slightly over valued.) This should be viewed as a good thing.
Who cares?
-- Cheers!
what do you mean? he just capitalized.
people are more likely to buy stocks in a company whose services they use.
that's the jedi mindtrick here!
world was created 5 seconds before this post as it is.
Has FB said what they needed the money for? Other than to make the founder rich? Server Farms? R/D? Media Licensing?
It didn't move because the underwriters were propping up the price because they don't want to look like they're overvaluing IPO stock. That's why it's collapsing today, because the underwriters are no longer propping up the price.
I read the internet for the articles.
Blue Horseshoe LOVES Facebook.
Amen, brother. Facebook is just a place for narcissists and the unemployed to hang out.
I'm amazed at how many writers in the press, and on /., seem to think that Facebook Inc. was the sole seller in the IPO, and furthermore that they sold all of their shares. Unbelievable cluelessness.
As a public service, here are the numbers:
2,559,318,652 total FB shares (100%)
421,233,615 shares (16.5%) were sold in IPO
180,000,000 shares (7%) were sold by Facebook Inc (43% of IPO)
241,233,615 shares (9.4%) were sold by investors/founders (57% of IPO)
In the earlier filings, the investors/founders were going to sell fewer of their shares. But at the last minute, on May 16, they increased their take by more than 53%, dumping another 83,818,263 shares because the risk profile is waaaay too high for any smart money.
Writers who say "Facebook raised $16B in this IPO" are either disingenuous, or clueless. Facebook Inc raised less than $7B. The other $9B went into the pockets of the pre-IPO investors/founders.
This IPO was clearly overpriced, for the benefit of investors & founders who want to get out while they still can. The numbers don't lie.
The people who will get most screwed by this are Facebook employees, and pre-IPO private-share-exchange buyers, who have a 6-month or more "lockout" period before they can sell FB shares to whomever wants to catch a falling knife.
Apparently 42 was NOT The Answer... For facebook anyway.
"Is that real poncho or a Sears poncho?" ~~FZ
lol
-- Terry
In hindsight they should have. I bet most didn't. The ongoing actions of the underwriters indicate they (and their prefered clients) don't want the price to tank.
Hogs get slaughtered.
I'd short the banks, but I'm sure the government will find a way to 'make them whole' at taxpayer expense.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
Just like the other snake-oil saleman Mark Cuban, Zuck saw the suckers had reached their ultimate ripeness (btw: he got married a day before the IPO so has future ex-wife wouldn't get half). No doubt they got the latest demographics of new members in the last one or two years, saw nothing but wrinkles and gray hair, soiled themselves a bit, and called their favorite Wall Street co-conspirators.
While zero is the least money you could invest, I knew people back in the .com days whose investment was less then zero.
They would buy a lot of .com stock on margin (i.e. a stock loan), and the stock would fall faster then they could sell it - leaving them with no stock plus a loan (i.e. a negative investment)
That's if you believe the media, who can only count people from the "Forbes" listings. The problem with understanding a person's total valuation is that there's a number of people who's value can't be counted, either because they refuse to reveal how much money they have, or that the valuation simply can't be tabulated for some other reason (i.e. too many swiss bank accounts).
For example, there's a bunch of Saudi princes, and the money magazines have NO IDEA what these guys are worth, but it's clearly multiple billions and money is no object to these characters, who buy jet aircraft and diamond-studded cell-phones on a monthly basis.
So, point is: Zuckerberg may be 29th of the known list of billionaires, but he's still not the 29th richest in the world, although clearly, he's now part of the 1% of the 1%.
But, on the bright side, he still dresses like he's in college.
If telephones are outlawed, then only outlaws will have telephones.
For $1800, I'd use Facebook.
It'd cost a little more for me to actually post useful information about myself though.
Technically, it is not dividends – it is future cash flow. To refine you argument, the value of a stock today is the sum of all discounted future cash flows to the shareholder.
Where “discounted” = time value. i.e. a $100 dividend a year from now is worth, say 90, while a $100 dividend 5 years from now is worth, say $40, based on 10%.
I say this because dividends are not the only way for the shareholder to get cash. Stock buybacks, company mergers, etc. at other ways,.
[Was Farcebook taken?]
Seriously, what this means is that the IPO was priced correctly. Supply and demand were matched and Facebook maximized the cash they received from this event.
Have gnu, will travel.
Which is fine. It improves the S/N ratio for the rest of the net. Just like AOL of old.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
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.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
Perhaps many of you were too young to remember the dot.bomb era when shares rose hundreds of % not long after the IPO.
Yes. The biggest run-up ever after the IPO was VA Linux, the parent company of Slashdot. LNUX opened at $30 and went up to $320 on the first day. Then it went into a screaming dive, and a few years later it was around $5. The company had only two profitable quarters in its whole history.
Facebook is at least profitable. But the market cap is far, far too big for its revenue. Worth a P/E of 92? No way.
Facebook was over priced at 100x earnings.
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... can build something like this full motion BSG Viper simulator http://makerfaire.com/pub/e/7541
what someone on a PA microphone said while introducing this to crowds at Maker Faire Bay Area.
mfwright@batnet.com
You shouldn't. Join me and thousands of other 'Bogleheads' http://www.bogleheads.org/wiki/Getting_Started who simply and effectively beat 90% of investors long-term by passively indexing and reaping the rewards of Capitalism without the added risks of middle-men who are there for no reason other than to take your money in both subtle and not so subtle ways. The philosophy is simple and rewarding:
1. Allocate your assets in a diversified fashion according to your need to take risk.
2. Use passive indexed investments because most major markets/stocks are highly efficient (can not be reliably predicted.)
3. Mind fees and taxes.
4. Enjoy your life with all the time you save not having to learn how to win the IPO game, pick stocks, mutual funds or their managers.
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.
Deleted
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.
Deleted
I heard that you can't short a new stock until 3 business days - unless I'm mis-informed, that means tomorrow we are going to see even more pressure on the stock
.
Maybe true for a new car but otherwise False. Think of a car as a thing that will take you say 150,000 miles for $15,000 2012 (i.e. present-valued) dollars. If you choose to use it now, you choose to "depreciate" it now. If you choose to not drive it much now, you choose to "depreciate" it less now. And when you use it more later, the car is magically worth more later -- your investment actually "gained value" (but not in 2012 dollars) from lack of use!
Things like cars, dish washers, or home insulation are great things to invest in during inflationary times. The worst thing is to just hold onto your money in that 0.000001% bank account. Then your money true wastes away.
I come here for the love
here is an interesting article http://seekingalpha.com/article/606961-morgan-stanley-s-2-4-billion-facebook-short
It appears that the trading on Monday, in particular two large block trades at the very end of the day over 1.1 million shares each, and all the trades through the day were holding the 34.01 floor.
Key events to watch out for:
1) MS liquidating its entire short position (this will actually create down pressure on the stock after liquidation is complete)
2) 3 month lockup end
3) Options availability
4) 6 month lockup end
5) Next financial reporting date.
6) A wave of new analysis after that reporting date
If management is clever, there is actually a strategy in place to drive revenue upwards quickly. Unfortunately, when one looks at the FB demographic, it is not a positive statistic. I live in South East Asia, I see how people use FB in Indonesia, Philippines, Thailand, these have been huge growth markets for FB over the last year, in particular Indonesia and Philippines. And we are talking about street vendors, housewives of very low income (by USA standards would be extreme poverty), and yes they use it to post status and talk with friends while sitting there waiting for customers or while at work being unproductive serfs. Explain to me how they are going to monetize that demographic, which from what I see is the large majority of their demographic in Asia. Microfinance? Way too many regulatory hurdles. Credit card? Way too many regulatory hurdles. Flog goods? The large demographic I am referring too does not have disposable income. FB Phone? See Microsoft and Nokia there, the space is crowded even though its booming. Advertising? This leaves primarily the consumer goods market, since this demographic pretty much only buys consumables. And this category of advertising, for non discretionary consumer spending, is not going to get better results from money spent on FB as opposed to where they are spending now, the budget in that space is allocated and FB won't be able to claw that away from existing allocations, unless they figure out a way around FCPA, because that space is full of agencies and "middlemen" in Asia, lol.
How many shares were sold to the average FB user from their personal brokerage account? Think about it, how many of those 1 billion or so users they say they have actually bought a share, a single share (38$). What about 10 shares (380$), what about 100 shares? I would guess that the dollars raised from sales individual retail investors who could be described as "avid FB users" numbers in the 7 maybe 8 digits. 9 digits I highly doubt". This says a lot about FB right here.
Were the insiders aware of the above fact? yes, and they proved it by selling huge blocks of shares
Were the bankers aware? Oh yes.
FB shares have been trading on "secondary" private market for a long time. There was 800 million USD share block posted on a private investment forum over a year ago which valued the company at 65 billion or so, I know people who mad a killing brokering FB shares for the past 5 years, a lot of those deals they were paid in shares. These were HNWI from all over the world trading in these shares, then Goldman came along with its private offering vehicle, the whole thing has been like a dutch tulip fiasco. All those investors are going to cash out, mark my words the minute the lockup expires for them, they will book their profit, they don't believe or care if FB has a way to monetize traffic, they just hopped on for the ride and are ready to get off the train and book their profits.
Will MZ be the next Bezos and announce a grand plan to use the 7 billion in cash proceeds to leverage into bricks and mortar and drive earnings? One can speculate, but I doubt there is a ripe industry around ready to have a large bite taken out of it like books and media was when Amazon was post IPO, and Bezos had an amazing ability to execute the plan. This is a longshot in my min
Real men don't need signitures!!!
However considering the valuation at 100x trailing 12m earnings the valuation already assumes exponential earnings growth. Therefore as someone already put it ... only way is down.
Considering AMZN's is trading at 179x earnings (and that after a quarter that didn't meet expectations - profit increased, but top-line tapered off) - you have to ask yourself - is Facebook more like Google or Amazon? Why Amazon is the permanent darling of Wall Street is not quite explained, but it has been stratospheric in terms of P/E for years.
Make sure everyone's vote counts: Verified Voting
Unfortunately that's not really true. The cost of equity should be higher than the cost of debt (else you're clearly doing something wrong with your equity), so unless Facebook had trouble borrowing money to grow, the IPO had nothing to do with investments. On the other hand, it has everything to do with diversifying its founders' assets by letting them convert to cash and buy other stuff, and more importantly, is the best out possible from a VC perspective.