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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."
you recall incorrectly. It had a pre-IPO sale price of 84, which then went to 100 the day of IPO, and was a very clean and steady climb from there.
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!)
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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...
*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!
What the hell are you talking about?
Facebook's IPO was a clusterfuck from one end to the other.
The insiders got greedy and bumped the # of shares offered by 50%.
The main underwriter, Morgan Stanley, quietly issued negative recommendations for Facebook and allegedly told their biggest clients first.
NASDAQ (allegedly) knew their system was broken before Friday, but went ahead with the IPO.
NASDAQ caused prices to plummet again on Monday, with their "oops we fucked up" paperwork having a noon deadline.
The unsophisticated stock buyers (mom & pop) saw the colossal mess and stayed the hell away.
So many things went wrong that it was inevitable the SEC would get involved.
[Fuck Beta]
o0t!
Actually, due to the way that the IPO deal was framed, Morgan Stanley didn't lose any money in propping up the share price. See http://en.wikipedia.org/wiki/Greenshoe. That's a bit hard to follow, but basically, Morgan Stanley started the IPO by selling more Facebook shares to the public than they bought from Facebook. This leaves Morgan Stanley with a net short position that they have to cover. If the price of the stock goes below the issue price, they cover it by buying back the excess shares they sold, which also happens to prop up the post-issue price. If the price goes above the issue price, they cover it by exercising an option granting them the right to buy those shares from Facebook at the issue price, effectively increasing the size of the issue.
That said, while Morgan Stanley may not have directly lost money here, they just plain fucked up this IPO and it may hurt their IPO underwriting business.