Facebook closes at $38.23 first day NASDAQ trading, above IPO price $38.00
marketwatch.com
marketwatch.com
On the other, the shape of the daily curve looks like it was supported at that level artificially.
Even if not, it doesn't look like there's a lot of market confidence for it at this level.
[1] http://finance.yahoo.com/echarts?s=FB+Interactive#symbol=fb;...;
A possible reason why it reached 38 in the first place: http://www.businessinsider.com/why-facebooks-ipo-pop-fizzled...
http://lockerz.com/s/209964861
It's easy to overlook the graphic; it's the thin black bar with faint text. It shows:
Bid (size): 38.00 (x9999900) Ask (size): 38.01 (x146300)
@pkedrosky: Watching certain underwriters try to keep certain IPOs above their issue price reminds me of playing Missile Commander, at scale.
Still, this isn't necessarily a negative for Facebook. They optimized their take, and Zuckerberg won't be needing the market's approval or capital again for a while.
Banks can't take on too much risk on their books.. especially in the post Dodd-Franks world.
A lot of people could thusly call that perfectly acceptable risk.
Exec resignations & the CEO apologizing doesn't sound like a lot of people are very accepting of the risks taken.
It's a big fraction, but it's just one quarters profits. It's not the destabalizing, company-breaking amount of money some people make it out to be.
JPMorgan has over a trillion dollars in assets on its books. The chicken-little nature of this has been a little silly I think.
JPMorgan is not out of the woods, they have to unwind their positions to an unfriendly market. This ordeal may also make them more risk adverse, but possibly less profitable in the short-term. Less profits, more losses, isn't going to make people very happy.
I don't think it's the end of JPMorgan, but acting like they have $3 - $5 billion in the couch cushions doesn't sound very rational either.
FB is being propped up to lure in "retail" investors. Retail investors == "muppets" == dumb money. If FB stock is so great then Goldman would be holding onto it themselves. Are they doing that? No. They are selling. $38 is their exit point. Anyone who's buying in will be left holding the bag. That is the whole point.
Technically, but the minute you go public you have to worry about the stock price. If the stock drops (IMO, it will drop here) expect a deluge of doom and gloom stories from the media questioning their business model and everything else in between. Then you may have unhappy employes due to the stock drop, harder time hiring, higher expenses since the stock price isn't rising and so on. Bezos did it so far, but it isn't easy. Zuckenberg sold a nice chunk of his $100 Billion company, buyers will be vocal if the price drops.
FB will have to do everything right for a few years just to justify the $100 billion price tag. It's not easy as ads can drive people away.
They build rather fake barricade.
edit: depends how the big fish will play, you may see none of these Monday morning. Its probably just a hand of underwriters keeping 80% of that shares. If they withdraw, you may see only 25000 shares at $38, for example [so it will be much easier for the stock to go deeper].
This is the reason IPOs work the way they do, with investment banks underwriting it. They get a large profit (potentially huge profit) in exchange for providing the services of a market-maker in the stock at $38/share.
There was nothing nefarious, just market making.
I mean, do you really believe they were offering $300MM of stock ready to sell on an "open action". They would all shit their pants if someone would have actually execute that.
No, what they did was not illegal, But yes, what they did was unethical and anyone knowing anything about trading will take it as a negative sign in terms of this stock's performance.
"Stabilization is the bidding for and purchase of securities by an underwriter immediately after an offering for the purpose of preventing or retarding a fall in price. Stabilization is price manipulation, but regulators allow it within strict limits - notably that stabilization may not occur above the offer price. For legislators and market authorities, a false market is a price worth paying for an orderly market."
EDIT: Just included the full description.
When the price is determined, the shares are ready to publicly trade. The underwriter has to ensure that these shares do not trade below the offering price.
If the underwriter finds there is a possibility of the shares trading below the offering price, they can exercise the greenshoe option.
http://www.investopedia.com/articles/optioninvestor/08/green...
Facebook's too big to fail!
That is one of the reasons lobbying is such an important game for conglomerates. Once you're on top, regulation is your friend; it's much cheaper to hire paper-pushers to fill out forms and submit them to the feds than it is to actively respond to and dismantle competitors. If only MySpace had gotten something like this in place a little sooner, FB would have been destroyed and MS would still be on top.
If we had trading that quickly doubled or tripled the market cap then that may well be evidence of unsustainably high valuations (I hesitate to use the word "bubble" [1] as it's largely a baseless pejorative at this point).
That being said, some say this is evidence of FB being fairly priced. I disagree on two points:
1. Pre-IPO investors expect an immediate return. Investment banks ("IBs") underwriting IPOs will be selling those shares to their most valued clients (in large part). Those clients expect an immediate return. Also there is a nontrivial number of "stag" investors in IPOs (investors who do first-day sales to trade on this bump);
2. The IPO itself can in large part in set the tone. A stock that jumps 50% on IPO sets expectations as a stock that's going places. A stock that drops can have everyone for the hills and a stock that's level can just make everyone nervous (becoming a prisoner's dilemma);
3. There's evidence the IBs are propping up the stock at issue price levels; and
4. Current investors will have a lock-out period from selling. This may be 6 or 12 months. Whatever the case, if supply meets demand now then extra supply suggests a price drop may be coming when that lock-out period ends.
Consider this: Even Groupon jumped 25% on first-day trading.
Now I'm not predicting doom and gloom here. In all honesty I have no idea what will happen with the stock. I do consider it a high-risk investment at this point and personally I wouldn't touch it. YMMV. It may still be spectacularly well. OTOH it could be the Beijing Olympics of the tech sector (the Beijing Olympics being essentially the turning point of the economy in 2008).
Trading at a P/E of ~100:1 is high risk. Make no mistake. Facebook has important strategic issues they need to deal with.
Anyway, to those early employees, congratulations. This will change the life for many (and already has). I'm particularly glad to see that Zuck didn't pull a Pincus [2]. This speaks highly of him IMHO.
[1]: http://news.ycombinator.com/item?id=3987892
[2]: http://online.wsj.com/article/SB1000142405297020462190457701...
In FB's case however, Zuck still controls (through proxy) the majority of votes; Zuck cannot be ousted.
There are other problems with a non-performing stock too; employee morale may be (and is increasingly?) tightly related to the share options they own. If management is not performing well and costing their employees money (!) that can ruin morale.
This doesn't just involve Facebook; currently the market is pretty bullish on web companies. It can quickly turn bearish, restricting the capital that currently flows so free.
That being said, Facebook doesn't actually need the cash for anything (apparent). It is profitable and can hire and build data centers.
For a company in Facebook's position, any large cash pile is likely to be used for acquisitions more than anything else.
But the share price still matters. It affects the company's ability to attract and retain talent.
In the 90s Microsoft did amazingly well from this. IIRC at the time an employee's stock options were price at the lowest closing price in the month after they joined. This meant that someone who joined in around 1990 could buy MSFT at less than $1 when it was trading at 50-100 times.
It is very hard for someone to leave in that kind of position.
AFAIK option vesting and pricing has changed somewhat since then (typically with the whole 4 year vest and 1 year cliff) such that early employees are probably fully-vested. Later share parcels won't be anywhere nearly as attractive. So those employees will stay basically as long as it's fun because it's not about the money anymore.
Then again, good luck motivating such people to do shitty jobs.
Facebook is now (IMHO) beyond the point where stock can be considered a lottery ticket anymore. Even it becomes a trillion dollar company that's still only 10x. At this point, a potential employee can simply multiply his or her RSU (restricted stock unit) allotment by the current price divide it by the vesting period and add that to base compensation plus target bonus to work out total comp.
Zuck still holds 57% of the voting power in Facebook so really the stockmarket doesn't matter much at all to Facebook. It's still Zuck's company and he can (within reason) do what he likes with it. That seems to be a tech company norm and probably a good thing based on the short-term narrowsighted thinking that seems to dominate Wall Street (just look at Yahoo).
TL:DR effect on FB = not a lot.
[1]: http://online.wsj.com/article/SB1000142405270230344840457740...
With high level share liquidity, insiders will find it easier to cash out and walk away from Facebook. Particularly those that have been there for a long time. The market has set a 'real' price on the shares, whereas the Second Market pre-IPO trading was a lot less liquid, and made it difficult to guess just what FB's real value was. Now employees know what their shares are really worth on a durable time frame.
The stock market is in a down swing, so there was little chance FB was going to see a healthy pop today. If you're building a long term business, all of the talk about it being up or down or popping today is literally irrelevant.
Groupon is specifically a great example of the investor con-game that goes on. They IPO'd a near historically small float (for a large company) to get as big a pop out of the stock as possible to punch the valuation high. Smoke and mirrors, and the stock proceeded to collapse 62% accordingly. It's a good sign that Facebook didn't pull any of that shit, and by all indications had a very sane and orderly IPO process.
If you're interested in the stock, give it time, you'll be able to get it under $30 / share in the next year.
So if you are a speculator, unlike with Groupon and their miniscule float, you can take a short position. I don't recommend it, there is the old joke about how long the market and stay irrational, but if you've got a couple hundred thousand you don't mind losing you can now at least make the bet.
One of my favorite pastimes is a sort of Fantasy Hedge Fund game where I manage a $10M hedge fund and try to out perform the S&P 500. This kind of play fits right into that.
Edit: I would summarize the post, but I would then spoil some of the drama of reading it as written.
They are currently priced as if they were bound to run a highly profitable business. Now, reality must catch up with the dream and promises.
So, this morning when it started trading, the first order seems to have been $42.05 (according to Google) with subsequent orders fluctuating from there. The LA Times is reporting (http://www.latimes.com/business/technology/la-fi-tn-facebook...) that the companies who underwrote the IPO (for example, Morgan Stanley) had to defend the price so that it didn't drop below $38 during trading today. Basically, one can do this by offering to buy shares at $38. That way, their clients who bought yesterday at $38 don't suffer a loss today as the stock is actively traded.
I would assume this means that all of the stock was sold, meaning, with a valuation of ~104 at close, Facebook raised ~16 billion.
My (amateur) thought is that it means the end of billion dollar valuations for companies with no revenue whatsoever.
Which will have the effect of pushing all valuations down.
Which is maybe not a bad thing, overall.
Will it mean less actual funds raised? Or similar amounts, just at notably lower valuations (and thus for a greater percentage of shares)?
Wall St. will now expect an annual profit, so even using the cash to grow the company massively with new costs (employees, buildings, etc.) will be frowned upon. They'll obviously still be expected to operate moderately within their cash flow means.
Investors certainly participated in that with the expectation that they could exit with profit in the near future.
In other words, they took a payday advance (with very generous terms to the borrower). You still need the payday.
Just wanted to point out that FB did NOT close at $38.02, though I think that would've been hilarious.
Seriously, look at GOOG, compare it to FB. You must be insane to buy FB.
FB is really stuck, they have no fucking idea what to do with all the users. FB ads don't work.
The only way FB will survive is if they start selling shit directly on their pages, highly targeted, Amazon-level goods and prices.
Speculating is about what you think will happen.
Buying stocks in a business is about buying into something that has shown to be profitable, and stable. Enough to exchange your hard-earned money for it.
Read "The Intelligent Investor" by Benjamin Graham to gain a better picture of what investing really is.
Good investing is about buying into something you think is undervalued.
If a business has been "shown" to be profitable and stable, as you say, then its stock price will be high enough to reflect that, and it's probably not undervalued, unless you know something special about it. All you can expect it to receive a steady small stream of dividends, or sell the stock sometime in the future for roughly the same amount you paid for it originally. That's not really "investing", that's just swapping cash for stocks. Save yourself some risk and just put your money in an index fund instead.
If you want to argue what the most rational approach to investing is, sure, that's fine.
However, there are a lot of ways to skin the cat these days. You can high frequency trade; you can slap puts on stocks if you have a skill as a short; you can use calculated hedges and skim points; you can carry trades through currency variations; you can buy and flip based on market panic (or short temporarily based on irrational euphoria), with no intention for long term holdings or long term profit concerns.
I think more people (less skilled professionals) can invest in the Ben Graham model, over a long period of time, than any of the other approaches. But, a select few have turned out to be extraordinary at the other approaches, and have made great fortunes that way as well.
GOOG investors are speculating that there's less potential for that.
what is with this title? It sounds like it's saying sullenly, "a year later, Facebook is barely above its IPO price".
OF COURSE IT'S TRADING AROUND ITS IPO PRICE, GIVEN THAT IT'S JUST IPO'D. I mean, of ALL the times a company could be trading at its IPO price, don't you think the IPO date is the least notable? Yeesh.
Incidentally, the submitter and I also have a VERY different definition of 'barely.' $0.23 in a day means $230 per 1000 days. At that rate, investing at $38 sounds like a steal to me! A better title might be "Facebook stock up already!"
[1] http://money.cnn.com/2011/05/19/technology/linkedin_IPO/inde...
Saying that +$0.23 in a day means $230 per 1000 days makes no sense at all. What happens on one day, especially when it's the IPO day, has no bearing at all on what will happen in the next trading day - or at least the open to close difference doesn't tell you anything, the volatility along with some other numbers (at my last firm we called them skew, mom and dad but they're all numbers which indicate the directionality of the vol surface) might give you some indications.
My gut feeling, and this is based on the time I've spent in the financial world and especially with options traders, is that today was good for pre-IPO investors who wanted to sell out of their positions, but that any retail investors who bought in on the IPO are going to regret it in the medium term - not least of which because the balance sheet just doesn't support the market cap.
For Facebook itself, it's a glorious success: they have successfully raised alllll the moneys. Most IPOs try to "pop" a little as an incentive to get the big underwriters to take multimillion/billion dollar positions (which they would be totally unable to liquidate at the 'popped' price, because they'd run out of buyers willing to pay decent money). But Facebook had people tripping all over themselves to get the stock. Why give away shares for anything less than they had to? Preserving existing shareholders' values is the name of the game, not giving away valuable shares to a bunch of outsiders.
An incredibly successful IPO.... for Facebook's existing shareholders. Possibly the best IPO ever.
(Disclosure: I bought 50 shares as part of the IPO, because I had that kind of money sitting around and was getting bored with medium-term corporate bond funds.)