Morgan Stanley bought 63M Facebook shares ($2.3B) to create a floor around $38

First: Stop thinking of it as a short. The underwriters are not short because of the overallotment; They've sold those shares along with all the "normal" IPO shares to mutual funds, pension funds etc. They are never obligated to "cover the short", the shares are permanently issued.

> does this mean there are less total shares released into the market than there would have been if the price went up instead of dropping?

Yes. When the share price hit 38, it is likely that MS took the money earned from selling those over allotment shares and bought a bunch of shares back.

> Basically what I'm getting at is this could be viewed as a good thing right? It means that the total outstanding shares is now less than it could have been had the stock gone up. Right?

That is an optimists view. The pessimist might say "This is a bad thing: The demand was low enough that the full greenshoe was not sold along with the IPO."

Simply put, the argument is that the the 'price' of price manipulation is one the market (read: the purveyors of the exchange who get to make the rules) are willing to allow in exchange for an orderly, stable market. IPOs are hectic times, and they want some stability while the dust settles.

Short term yes. But it's a little like a concert that is able to extract the maximum amount of seat sales revenue but has a bunch of non-filled seats which don't look to good for people attending and writing about the concert. Or a half empty restaurant on Saturday night. The story is that the price had to be supported. I'm not sure that is the message that will be good long-er term with a thing that is sold on psychology as opposed to fundamentals.

After all there is no way people getting in on the IPO bought the stock at $38 thinking it wasn't going to go up the same day.

There's a bit of a feedback mechanism, since the only price that really matters is the one you can get. If you had an auction (the stock market is already an auction that's always ongoing, btw) as soon as its revealed that Warren Buffet bid X, you'll see people bid X+1, even if 30 seconds earlier they had scoffed that X was totally unrealistic. You could have a silent auction, but the facts come out eventually, and then you'll see the same eruption of trading. That's almost what the bankers are doing behind the scenes, holding a private silent auction.

that is what happens during the roadshow, which led to the price going up in the last few days and more shares being issues because of demand

funny that Google tried the auction, ended up getting wall st against them and colluding to lower the price. Facebook co-opts all the big name banks as underwriters and gets a near-perfect opening price.

I guess we'll be seeing a lot of 2 week notices in 6 months..

3 months in this case[1]

[1] http://www.inc.com/eric-markowitz/facebook-going-public-inve..., Ctrl+F for "90 days"

Can employees still sell their shares on secondmarket now that FB is public?

I feel like its worth adding, for those who don't trade. If the stocks goes down, you are looking for short/long terms supports it may [temporarily] stop on. Those are usually backed up by either history of the stock (recent supports) or psychological barriers (like a round number). In situation of a stock with couple hours of history those will be psychological like number 38. Then a trader looks how much support there is on certain level. In this example there were about $300MM (IIRC) worth of stock somebody asked to buy. So if you ready to sell because there is a panic and stock does not want to go up, you see so much cheddar [of support at $38] that someone is willing to buy that you tell yourself: "there is no chance someone will sell so much stock, so it won't go lower". So you don't sell at this point of time. Less people want to sell, more demand for the stock. Stock then stops or goes up, BUT at least the fall was indefinitely defended.

But again, depends what decisions big fish will do over this weekend, Monday morning you may see shit on $38, or if they offer plenty for sell at any price, you may see a gap down like start trading at $36.

Hope this helps.

via gojomo http://news.ycombinator.com/item?id=3993727

http://lockerz.com/s/209964861

  Bid (size): 38.00 (x9999900)     Ask (size): 38.01 (x146300)

Ok and this is what I don't get. Usually companies that are traded publicly have responsibilities toward stockholders to do anything in the power (reasonably) for the stock to be going up. That the simplicity of a stock market - no investor is willing to lock its money knowing a company is not willing to grow.

Now, if you have one guy (that to average person is called a "hacker in the hoodie"), how do you trust a stock? What if there is some terrible decision he is about to make and the board can do shit to stop him because he has the majority of vote.

Basically, fatum of all stockholders money in this stock lays within one single guy and his 57% of vote. Can you imagine, hypothetically what would happen if tomorrow Mr. Zuckerberg is hit by the bus? ? Yes, I am sure they have backup plan for the backup plan in situations like that, but cant you imagine what kind of signal would that send to media? The stock would dive like a scubadiver on a deep-dive mission!

Well, I'm not sure this is true. You typically want to have a strong IPO to generate momentum for your company and shape the public's perception. Perhaps this is different because so much was trading in private markets before the IPO, but it does seem like perhaps they should have priced around the $36 range. Now the story over the weekend is

"Facebook fails to live up to the hype" http://www.thenewstribune.com/2012/05/19/2150253/facebook-fa...

"Facebook Fails Day-One Pop, Lags Behind Google" http://www.businessweek.com/news/2012-05-18/facebook-failing...

Had they priced it a bit lower and left some money on the table, you likely would have had enough positive momentum to probably maintain a 10-15% pop.

Does this matter for the company? Probably not. From my very limited experiences, the quality of people at facebook seems generally very high, and the culture seems focused on building product, not managing investor perception. Big picture, it's just a blip, but on the margin, it wasn't the ideal outcome.

"Underwater options and market reactions can destroy employee morale --- look at Yahoo."

As are employees locked in for 3 months while seeing their stocks free falling.

Sell in may is one of the few statistically proven effects that continues to this day.