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SEC Calls For Review of Facebook IPO
beaverdownunder writes "After losing another 8.9% of its IPO value in its third day of trading, SEC Chairman Mary Schapiro has called for a review of the circumstances surrounding Facebook's IPO on the NASDAQ late last week. Unable to sell Facebook short, investors have instead taken to short-selling funds that owned pre-IPO shares as revelations come out that the underwriters involved revised their Facebook profit forecasts downward in the days before the offering without similarly revising the opening share price. Meanwhile, Thomson Reuters Starmine has come out with a post-party Facebook estimate of a meager 10.8 per cent annual growth rate, valuing the stock at a paltry $US9.59 a share, a 72 per cent discount on its IPO price, signaling that the battered stock may not have found the bottom yet."
what the subject says
The Christian Right is Neither (Christian nor right). See: Matthew 23, Matthew 25, Ezekiel 16:48-50
What would Warren Buffet do?
Why would u buy?
http://www.marketwatch.com/story/facebooks-zuckerberg-thiel-sell-shares-2012-05-22
"Investors were still shaking their heads over the botched opening trading of Facebook when Reuters reported late Monday that the consumer internet analyst at lead underwriter Morgan Stanley cut his revenue forecasts for Facebook in the days before the offering.
JPMorgan Chase and Goldman Sachs, which were also underwriters on the deal, each revised its estimates during the road show as well, according to sources familiar with the situation."
From what I've been reading and listening to that information didn't come out to everyone. That's just awful and this IPO seems like a big mess.
On the plus side, the market hasn't been going crazy so it seems that the new tech bubble may not be all that bad.
Except for ending slavery, the Nazis, communism, & securing American independence, war has never solved anything.
The IPO occured the same week that the markets posted their worse performance so far in 2012.
I'm sick and tired of these banks screwing over the little guy.
JPMorgan Chase, Goldman Sachs, these companies truly represent the epitome of corporate greed and corruption in america.
if the stock price goes below certain level, will facebook close its doors?. it will be a gift for humanity if they disappear forever.
As I recall there was a ton of skepticism around the Google IPO. The stock plummeted for a while. Then if you bought it you would have made money hand over fist. Or even if you'd held it from IPO you would have made a ton of money. These internet firms are incredibly hard to value. Facebook may be on its way to zero, or it maybe going to the moon. Nobody knows yet.
As the adverts all say, "the value of investments can go down as well as up". The stock market is gambling pure and simple, so punters (investers) should not be surprised if they sometimes lose. Following the initial floating of the shares, the price will naturally settle to their current true value - sometimes this will be up and sometimes it will be down. The people who bought the shares at their opening value obviously thought they were worth it, otherwise they should not have bought them at that price. They took a gamble and lost!
I was telling a friend just yesterday I thought Facebook would be a good buy at $17/share. Thomson Reuters Starmine's price makes my recommendation look like irrational exuberance.
That said, a stock is like anything else. people will pay what they think it is worth. If they don't think it is worth it, they should not pay!
I could bid $100/share for FB right now and I would find lots of people willing to sell it to me at that price. If I feel it is worth that much, I shouldn't complain later when I find out someone would have sold it to me for only $10/share.
It's a lot like salary. If I accept an offer to work for $100K/year, I do so believing that is a fair value for what I offer, and I should feel good about it. If I later find out that my neighbor in the next cube offer, who has the same qualifications and start date that I do, managed to negotiate for $200K/year, I shouldn't complain. I'm still getting what I agreed to, and what I agreed was a fair price.
Bottom line - lots of people are just bitching because they didn't get rich quick, for doing nothing, like they thought they would. Too bad for them.
It's sort of irrelevant when you consider that every user hates Facebook, ever who will ever join has, and there's nowhere to go but down. Everyone who was stupid enough to invest in them is going to lose their ass regardless of the opening price. Oh, and it seems everyone knew Facebook wasn't going to magically double, re-double, then re-double their profits in coming years, which is what experts say they'd need to do to maintain that kind of a stock price. So to say they revised their profit projections in semi-secret is pretty pointless too.
P.S. mega lols at the irony of their complete privacy and lack of openness, which Mark Zuckerberg is obsessed with.
*Somebody* was a naughty little corporation, and didn't pay enough in "campaign contributions", lobbying , and political favors, hmm?
Let their example send a warning to you others out there that think you can just go around doing business without us getting our "vig", like it was a free country and open & fair marketplace or something!
Strat
Progressivism (aka US 'Liberalism'): Ideas so good they need a police/surveillance-state to enforce.
They need to take a look at the Instagram deal:
http://www.bbc.co.uk/news/technology-17658264
The deal was Facebook buys Instagram for mostly FB shares. The pair of them talked about the deal being worth $1 billion, and it was nuts. Buying an app with so few user for $1 billion made no sense. The real game here was that Instagram would PRETEND that it really was a $1billion deal and thus the shares were worth that much.
It's a trick similar to a mock auction, where a third party accomplice pretends the things being sold are of high value while knowing they are low value to create an inflated perception of value. There's been a lot of these dog IPOs lately. SEC seems to be turning a blind eye to them, and letting investors get ripped off. IMHO SEC will just whitewash this one too.
That was the motivation, now it's coming back to bite them.
If I had an Ass, I'd call it Fanny Bottom, then I could slap my Ass; Fanny Bottom, on the Arse.
I posted this on a previous article Friday after about *5* minutes of "research". If someone investing large amounts of their own money can't do this same trivial research, they deserve what they get.
Summary: Facebook was valued about 3-4x multiple of what Google was at its IPO with similar financials, and that *without* the literal explosion of revenue income that Google was experiencing at the time. It should have been priced closer to $15-20 (at the most!), with a *very* conservative forecast for growth (ie. expecting it to triple in a year like Google without the growth to justify it is investing in fantasyland!)
====
Google had $3.2B in revenue in 2004, and their IPO made them worth about $24B. Their net income the quarter preceding the IPO was $80M, and diluted EPS was $0.30.
Facebook had $3.7B in revenue in 2011, and their IPO made them worth over $100B. Net income last quarter was $137M, and EPS was $0.09.
Revenue and income are clearly in the same ballpark, but valuation and EPS sure aren't. Seems to me FB is in fact way overvalued right now...
And even more interesting to note is Google's revenue and income took off like a hockey stick in the quarters following their IPO (and thus so did the stock). I just don't see Facebook's revenue doing the same. There may soon be a lot of disappointed investors who naively assumed FB stock would be going the same route as GOOG just because it's a "trendy company" rather than actually looking at the financials...
But it's always bad when someone gets hurt.
Leela: "Is all the work done by children?" Alien: "No, not the whipping."
Actually, MS came out with a statement indicating that the all IPO members (both retail and institutional investors) received updated guidance during the roadshow via a revision to the S1, and that the pricing of the IPO included that guidance. The analyst opinion was simply reflective of the revised guidance.
You'd have to be pretty stupid to assume that analysts wouldn't revise their opinions based on the change in guidance.
Well, you'd have to be pretty stupid to participate in the IPO in the first place, let alone invest in the stock. The thing was overpriced, the talking heads said it was overpriced, a simple high school math calculation would tell you it was overpriced, most people KNEW it was overpriced... and bought it anyway hoping for another 'sure bet' circa the internet frenzy leading up to the internet crash circa ~2000.
In some respects this is a good thing, it brings a much needed dose of reality to fuzzy-brained armchair investors.
If you want to complain about something you can complain about the NASDAQ screwing up the opening and not providing trade confirmations for 3+ hours to investors whos money was locked up and who could only watch the price start to drop without knowing whether they even owned shares, or being able to sell.
-Matt
Clearly we need even more regulations!
And ordering their new cars/planes/yachts
at the prospect of some really juicy class actions and direct lawsuits.
Pop. Pop. Pop.
That is the sound of their pre-case party champagne going off.
Whatever happens, the small investor will lose and lose big time here.
Should the government bail out poor Facebook investors . . . ?
Schroedinger's Brexit: The UK is both in and out of the EU at the same time!
To be fair, in the days and weeks ahead of the IPO I can't remember anyone thinking USD 38.0 was a reasonable price for this stock - it was obviously overvalued in relation to the company's revenues and arguably overvalued in relation to its growth potential. Everyone I know knew this, so I can't imagine people purchasing the stock at the opening price except for greedy speculators who hoped they could make a quick buck on the FB bubble before it popped. Regardless of what Jim Cramer et al will say in the coming days it's very difficult to feel bad for anyone who lost money betting on this overvalued IPO.
The stock market is like a casino where the odds favor the customers. Overall, investors on the stock market make money, however, some investors will lose money.
In this case, however, the decks were stacked against the small guy. Some people had inside information that Facebook's financials were not likely to be as good as the rosy projections that were made public. That stinks and, until a lot of bankers and analysts go to jail for such actions, it won't stop (a tiny number of people are prosecuted, most pay a fine that is broadly the same as their gains, so no real loss and an even smaller number of people go to jail -- but the number is too small to make individuals think there is a realistic chance of them going to jail for inside trading).
The real "Libtards" are the Libertarians!
It's funny that when an IPO is priced too low, everyone first complains that it's the merchant banks doing favours for their already-wealthy customers (who naturally got the biggest IPO packages). Early investors (pre-IPO) may complain about the company failing to fully monetise. Then, when the founders take flight after selling their own shares at great profit, shareholders complain about deals done for management at the expense of the company's future.
Conversely, when an IPO is priced too high, everyone criticises the merchant banks, who have obviously lined their own pockets with a percentage of funds raised, although most of the money actually goes to the company that was looking for funds in the first place. This should be in the company's (and thus the shareholders') long-term interests - but who cares about that in these days of 2-4 year executive tenure with share options?!
Of course there should be accuracy in pricing an IPO, but who has ever fairly valued some of the crazy-assed business models of internet businesses over the last 20 years, and social media more recently..? For the life of the commercial Internet it's been 10% maths and 90% hype, and likely to remain so.
With each breath in, a flower somewhere opens; with each breath out, a flower withers away. In between lies beauty.
My feeling is social sites are like restaurants. They have a fashion clock. Players in the F&B biz sell a popular restaurant after 18 months. They know that it will come off the boil. The in crowd will move on. They have to... in order to stay in... Myspace anyone?
Facebook will be history in five years. It is a walled garden. Relief is just a click away... a click away. All it offers is a kind of critical mass. And the market knows it.
And shows it.
"No fear. No envy. No meanness." Liam Clancy
I'm sure there was a great margin of get-rich-quick hype around this.
Chewbacon
The Bible is like Wikipedia: written by a bunch of people and verifiable by questionable sources.
"This week investors will be able to buy shares of Facebook stock for the first time ever. It's great â" now you can lose all your money in the same place you lost all your time." -Jimmy Fallon
I think the FB price might have broad implications - with the value now falling and there being little on the horizon to suggest it will not keep falling this could send a strong signal that FB isn't the cool place to hang out any more. Users and advertisers could well start looking elsewhere. FB have, imho, been a bit reckless.
Generally speaking (and ignoring FB which I've already commented on)... but generally speaking this is NOT true. The small guy actually has the advantage in this market, which makes it ironic that the small guys have mostly abandoned it.
The big guys have been fighting amongst themselves since the crash and it has created lots of opportunities for smaller retail investors to find really excellent entry points. Simply put, the reduced liquidity in the market gives the advantage over to the smaller players whos trades don't move stocks while the bigger ones get stuck fighting each other.
It used to be that 'dumb money'... a euphemism for the 'retail investor', gave the markets enough liquidity to allow the bigger players to enter and exit positions without excessively moving stock prices. These days with the big boys playing against each other and reduced liquidity it's more a matter of one big boy outwitting another because their trades move the underlying stocks too much. The small guys can take advantage of the much more obviously oversold conditions to buy, and overbought conditions to sell. The big guys can't.
The problem that a lot of retail investors have is that they don't actually know how to invest... they think they are investing when they are actually just day-trading. They pile into dangerous spaces that have already built up momentum to the upside instead of buying when they were low. For example, smaller players are STILL piling into the muni/govt bond markets even as we speak despite the huge risks involved as the Fed QE2 ends. Most retail investors sell during the inevitable pullbacks in these spaces (instead of selling during the rise), or buy well after a security has risen (instead of when it was closer to the bottom and still falling). They believe the crap that is fed to them by the media, believe the hype, believe the stories written by 13 year olds or guys with fancy titles and obvious conflicts of interest, and don't bother reading the financials of the companies they invest in or even listen in on the conference calls.
It doesn't take all that much work to actually invest properly, it just takes a bit of patience and a minimum of a medium term view (instead of a short-term reactionary view). The best investors in this market aren't the idiots who day-trade, it's the people who might do one or two small trades a week, maximum, slowly working long-term positions and collecting dividends while the big boys rattle the market back and force and provide the great entry and exit points.
The deck just isn't stacked against us, people only believe it is.
-Matt
How could you, in about 80 comments now, miss the great Zuckerberg quote: "Dumbfucks, they trust me!"?
When people bought GOOG, they thought, "this is the next Microsoft, I'd better get in now."
When people bought FB, they thought, "this is what a bunch of other people probably think is the next GOOG. It's not, but I can't be the greatest fool."
Somebody here doesn't understand what exponential mean.
Fun fact : those "meager" 10.8% would multiply your money by 2 in less than 7 years, and by 28400 in 100 years.
Would you mind providing any concrete evidence for your assertions, or actual explanations rather than buzzwords and jargon?
Apparently no one learned anything from the last tech bubble. A tech stock with a debatable potential for further growth has an IPO and tanks. And people are surprised? Most companies of that value have either tangible products or services with a long track record. Facebook arguably presents cool as being a product. You might as well have valued a company that makes bell bottom jeans in the mid 70s as a multibillion dollar company. It's already showing it's age and in 5 or 10 years will be where Myspace is today. One day it may be the first 100 billion dollar company to end up as a penny stock. If the true value is under $10 it's more than halfway there.
That's right, there is only one person that should be ultimately held accountable for the mess. The same person that ensured he had full control via voting rights, the same person that had to sign off on the revenue forecasts, the valuation, and the IPO process.
And, what this person signed off on is, in a nutshell, to pay back previous investors with new investors' expense. This is traditionally called a ponzi scheme. The number pumping, book cooking is the same as Enron, Worldcom, and a plethora of Chinese companies listed all over the world, to list a few. Yes, the bankers help, the auditors help, its a very consolidated effort. In this case, however, you have a person who demanded voting control and voted this all into play. He should be held fully accountable. Don't expect it to play out that way however, because there will be backroom deals, lobbying everywhere, and all sorts of shenanigans to keep the ball rolling
Now the simple fact remains that man, would rather take investors money than give it to them. And he has full control. Let me repeat that with quotes with a personal emphasis "HE WOULD RATHER TAKE YOUR MONEY THAN MAKE IT FOR YOU".
Real men don't need signitures!!!
I would find it very interesting (almost funny?) if going public ended up causing Facebook to collapse. Social Media companies seem to become quite ephemeral when they collide with traditional business (eg. NewsCorp buying MySpace). I seriously doubt this would be the end of Facebook, though.
I will consider buying at $3 usd. That is a good valuation imho.
Should the government bail out poor Facebook investors . . . ?
Don't you even joke about that >_>
GCS/MU/P d- s:- a-- C++++$ UL++ P+ L++ E+ W++ N o K- w--- O M+ V- PS+++ PE Y+ PGP t+ 5- X R++ tv+ b++ DI++ D++ G+ e++ h-
And nobody came...
Facebook committed suicide. The billionaires got a little fatter on a few rubes.
"Flyin' in just a sweet place,
Never been known to fail..."
For them fucking up the IPO in the first place.
What is the problem?
Investor doesn't do their own due diligence, and pays too much for a stock which subsequently falls in price.
Investor is upset they lost money, and thinks they were swindled.
This is pretty typical, and why they have traditionally tried to keep less sophisticated investors away from IPOs and other very risky investments.
The only "news" here is that some analysts released updated revenue projections, and some investors didn't review or reconsider their purchased based on this information.
An investigation seems to be warranted, but it sounds more like insufficient due diligence on the part of the investors.
When it rains it pours ... Law Suits!
Even the SEC is now reviving up their Legal engines.
18 months from now, Zucki my be the new Ponzi.
xD
Shouldn't that be "zuckers" not "suckers"?
I think you need to reread the article. MS would not have a net short from this transaction.
The Greenshoe exception is that if the prospectus says the company is offering X shares, and the demand is high, the underwriters can issue additional 15% of shares without filling a new prospectus. It MS did offer extra shares, they would not be short - they would be offering additonal new shares. They would pick up their 7% commsion and FB would ger the rest. And I don't think they used the Greenshoe expection - I can't find any fillings on that. Also, they increase the number of shares prior to the IPO and had trouble selling those extra shares - Greenshoe only applies after.
And I am trying to figure out why people are saying the underwritters are propering up the shares. I have read reports talking about it but as far as I can tell they are talking out of thier hat. I can't find any primary source to suggest that they are. (And it feels wrong. Underwritting is about not taking risks. Sell the stock of shares you have been allocated and pick up your 7%. You are not supposed to have any inventory left over).
Stock was sold. Instagram stock was sold for $300 million in cash and 23m shares of FB stock.
Your right that the 23m prorably was a swap, and thus not a taxable event. But the $300m in cash is a different story.
That's easy. I'm a small investor and haven't been impeded by the big guys at all. They have provided opportunity after opportunity for buying and selling since the crash.
Most of the people on the boards I frequent (80% of which are retired in well into their 80's, by the way), also haven't had any real trouble with the big guys. So if you are going to argue that you are stupider than a bunch of 80+ year old farts you are putting yourself into a corner. I'm a 45 year old not-quite-an-old-fart-yet and some of those guys do a better job than me (and I'm pretty good).
This is another one of those media-hyped stories that just isn't true. People are afraid of the markets, but they're afraid because the talking heads are telling them to be afraid, not because there is actually anything to fear.
To be fair, I would say that not everyone has what it takes to be an investor. There is volatility, it is possible to lose money... and the shorter-term view you have of the market the more money you can lose. And, unfortunately, most people (particularly younger people) have a very, very short-term view of the market. The vast majority of retail investors these days don't actually 'invest'. They (a) day-trade when they think they are investing and (b) don't have any real savings to invest with anyway. For that matter, people tend to not understand the vast, vast, VAST economic risks they take just having credit card debt.
I can give you an endless number of examples of this but perhaps the easiest to understand is to ask why people didn't invest during the crash once the Dow went below 9000. If you look at the graph in hind-sight, even though the Dow dipped well below 7000 before eventually bottoming, the period of time it spent below 9000 was only around half a year.
During that period people basically stopped thinking, believed in the end-of-the-world stories, and lost out on one of the biggest bull runs in history. And you didn't even have to predict the bottom to do it... even investing at 9000 with the market still dropping another 30% before bottoming... those people made out like bandits simply by being patient.
Nobody has patience these days, and that is a very bad fit for actually being able to become a good investor.
-Matt
The stock market is like a casino where the odds favor the customers. Overall, investors on the stock market make money, however, some investors will lose money.
Actually the stock market is basically a giant Ponzi scheme with everyone in the world invested. Stocks are worthless unless they have a dividend. Luckily with inflation and growth in the population, it continues to work. However the annual returns keep shrinking because the big money is learning how to siphon money out off the system more and more without providing any benefit but liquidity.
The government needs to regulate it to even the odds ( super fast trading and such ).
You reply is full of bluster, handwaving, pointing to a single anecdote as if it proves your above assertions, and a couple of ad hominem attacks thrown in for good measure. And you didn't remotely answer my question.
Really, why did you not just ignore the damn question?