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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."
"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.
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.
We wanted free money!!
(pass me the tiny violin...)
No sig today...
if the stock price goes below certain level, will facebook close its doors?. it will be a gift for humanity if they disappear forever.
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.
Of course he's selling some of his shares. That's pretty well the whole point of this operation, letting the senior people cash out.
It's not like they need cash to put into R&D or anything.
Sent from my PDP-11
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.
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.
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.
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...
That's pretty well the whole point of this operation, letting the senior people cash out.
Right. The insiders sold $9 billion in stock. Facebook, Inc, only raised $7 billion. Accel Partners sold about 25% of their Facebook stock. DST Group (Russia) sold 37% of theirs.
Facebook is probably worth around $10 a share. Even that assumes 10% growth for the next 10 years, which is rather good. It's entirely possible that Facebook may not be a big deal as social moves to mobile.
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
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!
I don't see what's misleading about, "she pays a higher percentage of her income as tax, even though she makes a tiny fraction of what he does".
Certainly he wasn't confused when he said it.
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
"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
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
but the goal for Zuck was to cash in and get out. Has he done that? If so mission accomplished. we all know its always been about him....
Of course he did. That was the whole point of this IPO: they wanted to cash out before it burst. The money to be made out of it was already made by the original owners, at expense of the investors. There was not a single reason to believe FB was priced fairly and not overvalued, and no clear indication on how FB could make enough money in the future to justify a 100B valuation. After the market experiences in the last 15 years, I cannot believe how many bought into the hype of this.
*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!
How could you, in about 80 comments now, miss the great Zuckerberg quote: "Dumbfucks, they trust me!"?
Arguably the money will be made at the expense of the brokers like Morgan Stanley who stepped in to prop up the share at launch and bought up billions of dollars worth.
The mistake they made was over-estimating demand and releasing too many shares. A smaller float could well have become a feeding frenzy - not that I think it's worth thirty bucks a share, or whatever it sinks to today either.
feeding frenzy
!!!RARE!!! The original Facebook share! Never sold since IPO! Own a part of Internet history! $300 or better offer!
(check other items in my Ebay store)
Contrary to the popular belief, there indeed is no God.
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.
You don't have to pay any income tax at all - there are plenty of places that don't charge it. Go live on the Cayman islands and make your fortune there - I don't think they have any income tax or capital gains tax, so you can keep 100% of your money!
Of course it's a bit more difficult to make your money without an educated workforce, or lots of infrastructure, or developed labour and financial laws, or trade connections, or any of the other things that government provides for business. But who needs any of that? People who make money make it entirely through their own effort and talent and don't owe one iota of a debt to the government.
On the other hand if you want to make use of the advantages that government spending provides in order to make your fortune it behoves you to pay the tax that finances that spending.
This is the culture in Scandanavian countries, who have been at the top end of the standard of living charts for a very long time now. It's also a common* attitude here in Australia and we rank high in those charts, (*common but not the prevalent one, which is closer to UK culture ). It was also a common attitude in the US until the 1970's when, as the song goes - "We all got stoned and driffted away".
At 50+ I've seen the political pendulum swing a few times but it's slow on the scale of a human life time, the spring driving it even unwound a bit with the civil rights movement, the disintergration of the USSR and "Gang of four" in China. Yet internet forums across the planet are chock full of angry young men who would tear all that down and start again because they don't like (say) the current IP laws. I may be wrong but I think I can understand where they are coming from because I was an angry young man once,whereas they have yet to fully experience actually "seeing it all before".
Having already made myself unpopular with at least half of slashdot I'm going to alienate the rest of you by saying that this attitude was also displayed by both Bush and Obama when the GFC exploded in their faces. They set aside their ideologies to take unpopular and decisive joint action that in my opinion avoided a global panic run on bank deposits and the subsequent great depression senario that would follow. For a trully serious problem they put society first and I think history will eventually thank them for it.
To head off any angry young men posting BraveHeart style freedom rants on my lawn. - You are alreay free from everything except consequences. Nature (AKA -The great JooJoo in the sky) intended it to be this way. Just like Ayn Rand, she does not care about your existance any more than a road train cares about the bunny hypnotized in it's headlights
And did you exchange a walk on part in the war for a lead role in a cage? - Pink Floyd.
An excellent response, the situation is 100% analogous.
I was born in a thief-provided hospital, educated at a thief-endowed school and the villains even gave me money for college and I'm sure the same goes for most of us.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
"they just plain [expletive deleted] up this IPO and it may hurt their IPO underwriting business."
Maybe, maybe not. You could argue that they priced the IPO pretty much optimally, for FB that is. The fact that the shares tanked on day 1 means they didn't leave any money on the table and FB got the most they could have possibly hoped for in the offering. The IPO investors got screwed but if they didn't see this train wreck coming then perhaps they should be looking for a less intellectually demanding line of work.