...and the tweet referencing it was about 20mins before the close. The earlier tweet was:
@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.
It used to be "the sky is the limit". Now it is "the floor is the limit and the floor is $38". The Facebook baby bird broke out of its egg today. Next week, it must learn to fly out of the nest on its own. That should be a dinner and a show.
"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."
It means that underwriters were putting lots of stocks to buy at the exact $38 level so that this will scare people away from selling (oh wow such a huge position someone wants to buy [$38 x 9999900 shares == $379,996,200], there is no chance someone will buy that much of a shares [and therefore stock will plunge deeper], so I better stick to my own shares and not sell).
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.
I see what you are saying, but don't you agree: hadn't not demand got burned out quickly and drew the price down, they wouldn't have had to put a large buy order at $38.
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.
The $3B is only what's been reported. Tip of the iceberg.
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.
Days after the story broke shareholders had an opportunity to replace Dimon as the chairman and reducing his comp package -- leaving him with the CEO title. They overwhelming voted not to.
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.
Most shareholders had cast their ballot way before the loss was reported.
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.
http://finance.yahoo.com/q/is?s=JPM - it's more than half of an entire quarter of profit for JPMorgan Chase, actually. Everything I've read says the $3B will increase as they try to exit the position, too.
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.
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.
good read, I +1 you. And don't forget that Facebook does not have a special place in media when it comes ONLY to a positive news; they will write about them big time whether its good or bad news. This will definitely not play nice when there are some bad news, because lots of publicity around bed news will have an impact on their stock performance.
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.
Ugh. What is it about finance that I find so hard to grok... So, essentially they're able to offer more shares than they originally agreed to, correct? Where do those extra shares come from, and how exactly does that help keep the price above water?
No its not. Over allotments are to stabilize the lack of sellers above the offering price and to raise additional capital for the issuer. It could be a reason for the price returning to $38 but most likely that was not why either. The buys at $38 can be explained by other factors like orders from people or funds who did not get all or any of their requested allotments and had resting orders at 38.
Overall the markets are skittish and the price range is high based on current earnings but there is so much potential future earnings, I think we will see much higher prices if not right away some time in 2013.
The prospect of that reality is frightening. Facebook is so large now that if it went away the amount of civil discontent would be a point of concern for politicians (primarily if Facebook's disappearance gets pinned on them).
The flipside of that of course is that they can pass whatever draconian regulations they want in regards to the internet, so long as Facebook gets a free pass and is allowed to keep chugging along. Surprised they didn't do that already for things like SOPA.
Facebook would in practice get a free pass on things like SOPA. AFAIK SOPA left discretion up to whatever agency would have been charged with enforcement (likely ICE or SS), so reports asking for the removal of Facebook would, of course, never be allowed, but reports on any/all of FB's competitors would go through.
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.
I watched it go to down to 38.00, and then went up again 0.01, 0.02, etc, slowly. I don't think it dropped at all under 38.00, and it was most likely manipulated.
Well the price did come very close to $38 several times (twice before 12:00 and then during the flat part at 3:34 that you mentioned) but the price never crossed below $38. This does show a lot of resistance/support at $38
Yes, of course, because the underwriters in an IPO act as market-makers at the IPO share price. That's their function in exchange for making an obscene profit taking a company public.
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.
"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."
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.
Layperson question: what does it matter? What impact does Facebook's valuation have on its day-to-day business, now that they have the IPO cash in hand?
Bear in mind that they don't have all that cash. Some early investors and founders are taking some of that money off the table (which is fine). According to [1] over half the money is going to existing stockholders rather than the company.
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).
The shareholders control the board, and the board controls management. Thus, unhappy shareholders will mean new management.
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.
Typically, they'll be offered options to buy stock for essentially nothing. Often there will be tricks though - for example it might take a couple of years in employment to be able to exercise all of the options.
The valuation will be used to continue to reward employees, and in fact will be used a lot more frequently now that there is liquidity and the IPO is out of the way.
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 what about the cancel/change orders being stuck in limbo the entire day? I was unable sell $fb because of this. Tried to dump them at 41.50, but because one cannot "trade with oneself" I couldn't. Heads should be rolling at Nasdaq by now...
This is why you do not play the IPO game unless you are an insider (underwriter or early investor of the company in question). You will lose. They will see to it. And you will have no recourse, as they are in bed with the regulators.
Facebook's IPO was yesterday (while it started active trading today). If you were one of the blessed investors, you could buy the shares yesterday at $38. It seems like there were a lot of orders early today (probably entered in before Facebook started trading) that were executed early and by the time 3pm rolled around the pent-up demand had subsided.
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.
Stupid question: How much money did Facebook (the company) actually raise? A lot of shares where sold but not all of that money goes to Facebook. It goes to whomever was selling those shares.
A number of early investors sold some of their shares in this IPO.
Of note from this SEC filing (look at the "Principal and Selling Stockholders" heading), Zuckerberg himself put 30 million shares into the IPO, shares from some early angels were offered, Goldman Sachs offered half their stake, as did DST.
Facebook sold some new shares to raise money, but previous investors were also selling their shares through the IPO (including some insiders exercising stock options and then selling the exercised shares to cover the taxes). The SEC filings will tell you the grimy details.
Traditionally, the point of an IPO was that it let the company raise more money than private investors could provide, so that the company could fund further growth. It's hard for me to see what opportunities this IPO opens for Facebook. They were already extremely well-funded. They already saturate their niche. It seems like the most likely consequence is that it will lead to early employees cashing out and moving on, while the only possible use for the billions raised are the kind of acquisitions that history shows rarely result in a net gain for the acquirer.
With $12 billion or whatever they're keeping out of the $16 billion, plus the $4 billion on hand, I guess they could try to eat Twitter if they get really bored. But you're right, the extra $12 billion doesn't do much for them, other than perhaps provide defense capital for patent problems (it'd take a helluva patent problem to start eating multiple billions though).
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.
The after-hours charts are interesting. The stock price is bouncing around the $38.23 range (+/- $0.03), but even marketwatch.com is showing some jumps up to the $40 range.
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.
Speculating is not about what you think will happen. It's about what you think other people think will happen. It's about the market, not the inherent value of the stock.
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.
One of the most common and simplistic valuation methods is using the Expected Value of the Net Present Value of Future Earnings. Past information can be an indicator, but is in a sense "Sunk."
I agree about the value of Ben Graham, however, there's no set definition for what investing is really all about.
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.
That's a meaningless statement. What you "think will happen in the future" is based on what you know about the company. And what we know now, doesn't look so good.
If it stays there, then $38 is the market view of the present value of future business models it thinks FB will be able to create. It's not just what they do now, it's "the unknown" things people think they will be able to do (which is just speculation).
GOOG investors are speculating that there's less potential for that.
For a long time, Google had similar monetization challenges. It was only after Adsense that they really started making money. I imagine FB's pricing reflects the expectation that they'll find a way to make serious cash, although I'm not overly optimistic on that front.
The question for many investors isn't in the current figures so much as what are the future figures likely to be and how that compares to the current figures.
(EDIT:
Earlier this title read "barely above it's IPO price". It definitely used this word, "barely". My comment is now moot. I'm leaving it due to the replies.)
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!"
On a day where a company has IPOed, for it to be close to the IPO price on the close is a comparative failure. When you float a company your underwriters will generally float at a price which is slightly under what's perceived to be the true value - this is mostly to ensure that the shares get sold (i.e. the VC firms and investors when the company was private get to make their profit from selling their shares), and because it generally ensures that the price will go up on the IPO which makes the company look better.
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.
It's a failure if you're in the business of buying IPO stock.
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.)
Oh for sure, good for Facebook as well. Post-IPO Facebook doesn't really care so much what their valuation is - they've got the cash, they've got a profitable business.
Considering many recent tech IPOs have ended up much higher on their opening day, AND Facebook was highly anticipated, it is surprising that Facebook barely gained anything on its opening day. In fact, if not for the underwriters, it might not have gained anything at all.
Stocks can often pop on the first day after IPO, if there's a lot of demand building. There was a time when companies doing IPOs would consider a 100% increase ("shooting the moon") a realistic possibility. LinkedIn went up 117% a year ago[1]. I don't mean to indicate that these events are positive or a good expectation, just that it does frequently happen.
I guess my thought is that that expectation is dumb. My thought is it's better this way. The difference between the 'high close' and 'low open' should instead have gone to these companies: they should have IPO'd at the high price, so they have more money in the bank. Selling at half of what you'll be worth later in the day is dumb, and means you don't really know what you're worth.
It quite possibly would have if the underwriters hadn't been propping it up. Next week, when they stop buying up shares to keep it at $38, will be the real test.
The flip side of that sentiment is "wait until a bunch of sector-specific ETFs and other mutual funds start buying their stock". You know, QQQ Trust, S&P500 index funds, et cetera.
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.