Facebook fall accelerates, Nasdaq prepares compensation plan
UPDATE June 6: Facebook shares [NAS:FB] were down 3.96% to $US25.83 in late trading - giving the social network (IPO value: $US104 million) a market cap of $US55.59 billion.
The fall came despite the Nasdaq saying it planned to compensate investors for technical glitches that marred Facebook's first day of trading.
Losses caused by trading system foul-ups are estimated above $US100 million - a significant sum by most measures, but chump change next to the $US48 billion (and counting) in shareholder wealth destroyed since Facebook's May 18 listing.
Goldman Sachs, Morgan Stanley and other underwriting banks have been accused of downgrading their earnings estimates midway through an investor roadshow, then only informing selected clients, who were in turn able to offload shares on Facebook's first day of trading.
The Securities and Exchange Commission says it is accessing events in the build-up to the IPO.
Facebook's market tumble since May 18 has magnified frustration over the technical glitches on its first day of trading, which led to a two-hour delay before the prices of initial trades could be confirmed.
Frustration is likely to continue, with the Nasdaq reportedly setting aside $US13 million for compensation - above its usual $US3 million cap for system outages, but well below the amount claimed in losses.
NZX recently chose the Nasdaq's trading platform to power the local exchange.
Facebook: another day, another new low
UPDATE June 5: Facebook shares picked up where they left off after the weekend, falling again.
The social network's stock [NAS:FB] closed at a new low of $26.96 - giving it a market cap of $US57.51 billion.
The losses came as Facebook said it its considering allowing under-13s to use its service.
The broader Nasdaq finished the day up 0.46%, recovering from losses earlier in the day.
A rare piece of good news for Facebook saw S&P Capital IQ raise its rating on the stock from sell to hold - citing the fact it had fallen under its target price of $US27.
Facebook shares dive to new low
UPDATE June 2: Another bleak trading day for Facebook investors saw the social network's shares fall 6.35% to a new low of $US27.72.
The fall outpaced a sharp decline in the broader market, with the Nasdaq closing down 2.82%
Facebook has now lost $US47 billion in market cap since its May 18 IPO.
Facebook shares fall off a cliff as options trading begins; Nokia rumour hits the street
UPDATE May 30: Facebook shares [NAS:FB] fell 9.62% today to $28.84 - marking the first time the social network's shares have fallen below $30.
The slide took the company's market cap ($US104 billion on listing) down to a new post-IPO low of $US61.66 billion.
The fall was triggered by the start of options trading today. Facebook options were the second-most heavily traded on the Nasdaq this morning (behind Apple), with sentiment clearly negative about the stock's future prospects.
The broader market was up 0.83%.
It was a better day at the office for Norway's Opera Software, maker of a mobile web browser used on Samsung's Android tablets and other devices.
Opera's stock [NAS: OPESF] was up nearly 20% on speculation it might be bought by Facebook. The rumour mill has Google mounting a rival bid, driving up price above $US1 billion.
Facebook, which raised around $US16 billion by selling about 15% of its shares with its IPO, recently paid $US1 billion to acquire Instagram.
Meanwhile, Computerworld has reported a respected analyst saying Facebook plans to buy struggling Nokia for $US10 billion, the better to advance CEO Mark Zuckerberg's plan to create a "Facebook phone". Again, investors seemed unimpressed.
Nokia shares [NAS:NOK] rose 4.61%.
Facebook shares finally find a floor - but company faces investor lawsuits
UPDATE May 24: Facebook shares finally found a floor today after two sessions of sharp losses.
The social network's stock was up 3% to $US32.12 in late Nasdaq trading, giving Facebook (2011 profit: $US1 billion) a market cap of $US87 billion.
The rise came despite The Wall Street Journal featuring news that a group of investors have launched a lawsuit against Facebook, CEO Mark Zuckerberg, CFO David Ebersman, and the IPO's underwriting banks. The group is seeking class action status for its suit.
Yesterday, the SEC said it would examine issues around the IPO, while the state of Massachusetts subpoenaed Morgan Stanley, the listing's lead underwriter.
Morgan Stanley and Goldman Sachs have been accused of downgrading their Facebook earnings estimates part way through an investor roadshow, but only informing selected larger clients.
Facebook CFO Mr Ebersman has also been accused of mis-judging the market, or greed, for pushing for around 15% of Facebook's shares to be floated.
Google - and frequently cited comparison - floated 7.23% of its shares with its initial listing.
SEC to examine Facebook's float, shares fall further
UPDATE May 23: Facebook's shares [NAS:FB] slid 8.9% to close at $US31.00 today.
The fall, on the social network's third day of trading, reduces its market cap to around $US84.84 billion.
It followed a 10.99% fall yesterday.
Facebook listed on Friday at $US38 a share, valuing the company at $US104 billion.
Pressure on the company has intensified with Securities and Exchange Commission Chairwoman Mary Schapiro telling media her agency will examine "issues" surrounding the IPO in an effort to ensure confidence in public markets.
The SEC has yet to detail the scope of its investigation.
Additionally, the state of Massachusetts has subpoenaed Morgan Stanley, which led the consortium of investment banks that underwrote Facebook's IPO.
The float of around 15% of the social network's shares raised more than $US16 billion early Facebook investors.
The Wall Street Journal has reported that Morgan Stanley and a second underwriter, Goldman Sachs, revised Facebook earnings estimates downward part-way through an investor roadshow in the lead-up to the IPO.
The Journal says only select institutional investors were informed of the change.
While IPOs for brand-name techs have typically popped by a third on listing, Facebook's debut is increasingly being referred to as a faceplant.
With the benefit of hindsight, analysts say the social network's CFO, and underwriting banks, priced the float too high given concerns over the Euro crisis.
Too many shares floated?
Facebook floated around 15% of its shares. Pundits now say that was too greedy.
Google floated 7.23% of its shares when it initially listed in 2004 (raising $US1.67 billion), while Groupon pumped up interest by putting just 5% of its stock on the market late last year.
Eyebrows have also been raised by a Wall Street Journal report that two of the Facebook IPO's underwriting banks, Morgan Stanley and Goldman Sachs, revised their financial estimates downward part-way through the social network's investor roadshow in the lead up to its listing - but only informed larger investors.
The revision related to the fact that Facebook's user base is increasing faster than it serves ads. The trend is blamed on increased use of mobile devices, where the social network has traditionally not served ads.
FACEBOOK REVENUE (PROFIT/LOSS)
2004: $382,000 (no profit/loss figure reported)
2005: $9 million (no profit/loss figure reported)
2006: $48 million (no profit/loss figure reported)
2007: $153 million ($138 million loss)
2008: $272 million ($56 million loss)
2009: $777 million ($290 million profit)
2010: $1.97 billion ($606 million profit)
2011: $3.71 billion ($1 billion profit)
Source: Facebook SEC filing
Facebook shares fall sharply
UPDATE May 22: Facebook shares fell as much as 13.7% in the company's second day of trading on the Nasdaq.
By early afternoon, the stock partially recovered to close at $US33.04 or 10.99% down on its Friday close, valuing the company around $US93 billion.
Adding insult to injury, the Nasdaq Composite Index was up 2.46%.
Pundits were quick to say a consortium of underwriting banks, led by Morgan Stanley, had over-priced the listing.
"The underwriters completely screwed this up," Wedbush Securities' Michael Pachter told The Wall Street Journal.
"This thing should have been half as big as it was, and it would have closed at $45.
Morgan Stanley forced to step in and prop up Facebook float
May 19: Facebook did not enjoy the "first day pop" experienced by many tech IPOs.
The social network listed at $US38, valuing the company at $US104 billion.
Shares [NAS:FB] jumped to $US42, but then faded back to $US38. In late trading they just over $US40 before fading to close flat at $38.23.
According to a Wall Street Journal report, Morgan Stanley, which led the 11 banks that arranged the listing, had to dip into an emergency reserve of around 63 million Facebook shares - worth more than $2.3 billion at the offer price - to boost the price and create a floor around $US38 a share.
Around 18% of Facebook shares have been floated.
CEO Mark Zuckerberg pressed a bell to ring the Nasdaq's bell via video link from Facebook's California campus.
Sniffed The Yorker:
The great man-boy was wearing his hoodie, of course, and it looked like he’d had his hair cut for the occasion, or perhaps for his 28th birthday, which was earlier this week.
He didn’t say anything, but he received a nice bear hug anyway from Sheryl Sandberg, his CEO and surrogate mother.
From below the hastily erected stage, a scrum of geeks who were about to get rich [from stock options] gave him a loud cheer.
Facebook has been experimenting with a pay-to-post scheme in an apparent effort to diversify its revenue.
However, build up to the IPO was not helped on Thursday as General Motors pulled its Facebook ads.
According to GM sources quoted by the Wall Street Journal, the car maker spent $US10 million promoting itself through the social network - but saw little impact on purchasing behaviour.
GM is the third largest advertiser in the US.
Its departure from Facebook was bad news for Kiwi ex-pat Mark D'Arcy, who last year was head-hunted to lead Facebook's effort to boost its appeal to traditional advertisers.
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Comments and questions44
Nzers should invest in all IPO SOE shares...and expect a good premium on your OwnBook.
I am not surprised that Facebooks IPO isnt a roaring success - If you look at the fundamentals, the whole greatly overhyped mess that is Facebook is enough to scare away any prospective investor with half a brain in their head.
I find some of the comments interesting. they raised $16 billion from investors so hardly scared away. The price was well above the original price range suggested which I think was around $30.
No IPO premium will be a concern for the underwriters and arrangers. Is it worth $38 a share, the market says so, only time will tell if it is a good or bad buy.
But again $16 bln of money was invested so there must be a lot of investors who are confident in it.
Read the article again. Morgan Stanley are propping this junk. And there are another 10 banks heavily involved in prop-dusting.
I made a comment on an earlier comment which talked about investors being scared of Facebook. $16 bln of new investment does not indicate that investors were scared. In fact they raised the price during the process because of the demand.
The fact the IPO has been weak is a concern for those that bought but that was not my point, investors were not scared going into the IPO.
In terms of this being junk, time will tell. It remains high risk but the payoff could also be very substantial.
The problem for a lot on NZ investors is we do not see these types of transactions in this market and therefore I think are often too conservative in our approach.
With Greece about to implode starting the domino effect in Spain, Portugal, Italy and then the entire Eurozone - maybe this float is just another hyped IPO just before this bubble bursts?
Google Plus is the Facebook for Grown ups...
Google Plus is the Facebook for Grown ups...
But without the people.
All of the above comments are right.Facebook has poor fundamentals with revenue streams not proportional to it's valuation together with unstable economic prospects in Greece/Europe.I'd also add that ordinary investors have had enough of hype and are very wary of anything that the financial establishment endorses.
Savvy investors such as Buffet kept right out of this and he was right to do so.
Facebook could also be a victim of it's own success ie todays capitalistic world favours guys like Zuckerberg of which the world has had enough.
People go onto google to look for things and information. People go on Facebook to see what other people are up to. One is a useful tool the other is a helpful distraction.
How can I short sell Facebook?
I got the impression that the big investors felt it was overpriced, but had no option but to buy in anyway because of the hype: their clients would want to be 'in' in case it takes off.
Facebook will follow the same path as .com. It will crash.
Looks like readers think IPOs are about investors. Tui.
I've always wanted to know where the revenue streams are coming from. Surely, ads by themselves, can't justify the bloated value of the company. It could turn out to be a house of cards built by snake oil salesmen, plying their artifice on to gullible investors.
Very sad, but you are absolutely correct.
Even GM has realised that peeps who use FB don't have the money to buy a new car.
The IPO was mispriced because too many thought it will be an easy ride to riches.
FB is still a great company irrespective and ultimately, the company's share price will rise or fall on what it actually will deliver - not the hype or expectations, which may or may not come true.
Lessons here for all those in NZ queuing up for a slice of the SOE IPOs.
Agree with your comments on FB.
I think the managers of the first SOE IPO will ensure that the offer price to at least mum and dad is below the market value to ensure a premium on listing. If that does not happen then will be harder to do the next deals. Plus the manager has long term buisness with their clients (investors) so want to keep them happy.
the party that will lose out is the taxpayer as we will sell shares for less than they are worth.
The FB IPO achieved the best price for the existing shareholders and that is job of the directors, so well done on that.
"FB is still a great company" Sheesh it's no wonder you can't afford the flight back to China.
FB was never "a great company" and it never will "be a great company".
FB has never produced anything and it never will.
End of story.
$1 billion in profit - that's FB.
Loud mouth good for nothing - that's your kind of talk.
Don't tell me!
Tell it to the peeps who got suckered into buying the shares.
Cos you have no idea FB make $1 billion last year and will make around $1.4 billion this year - less than what was expected but still more than you will ever make in your and your family's lifetime. Or ten lifetimes!
Hardly, proving your point with that remark.
They don't "make it", they "don't earn it".
They get it the same way Bridgecorp and other scammers got theirs.
Here's hoping these FB snake oil salesmen get the same results.
Next you will be writing that Google and Microsoft also don't earn anything.
Same as advertising agencies, right? They don't make it or earn it?
No wonder New Zealanders continue to toil at the land and wonder why they are falling further an further behind the rest of the world.
You can sell anything to idiots - and they did.
You get what you deserve if you brought shares, they would be lucky to be worth $5.00 at end of day!
FB makes a few billion dollars in profits every year.
I will buy from you at $10 per share NOW if you are so brave to sell - $5 down into a solicitor's escrow account, and balance in 6 months' time.
Are you man enough or just the biggest mouth around looking for house flies to swallow?
This is a dog a la Myspace $580m to $35m in 3 years!!
So was Google and Amazon back in the early 2000s. Not saying FB will make it but not willing to dismiss it outright.
But also not investing.
Seems the chickens have not only come home to roost, but they've perched themselves above the investors and are c***ping on them.
Worse thing is that the money being used are from fund managers ( using investors money) and Banks using pension fund money tp prop up the underwrite and initial float
Of course some investors who were in pre the IPO will make a lot of money, but those who buy in the next 6months will probably loose a significant portion of their capital.
The only exceptions will be those who trade in and out on market bounces (of the dead cat variety).
Perhaps ipredict will run a futures estimate for FB, me I would think that the share price will be between $5 and $10 within the next 12m. And that assumes they can continue to show growth of revenues and profits.
Even Sucker is dumping
I bet Saverin, Winklevoss and Mr. Napster are all heading for the door too
http://www.marketwatch.com/story/facebooks-zuckerberg-thiel-sell-shares-2012-05-22
@Anon. Google is useful and has some great real assets, Amazon is a retailer who clips the ticket, Failbook is a fade and only flavour of the month
The sale of shares by Zuckerberg and Thiel was part of the IPO process so this is nothing new.
Not sure I would suggest they are suckers - Thiel invested $500k and has $633 m in cash back plus whatever he still owns in shares. I would be happy to be a sucker any day of the week to replicate this.
Accept your point on Amazon actually having a business model from day one. Google in the early 2000s post the dotcom bubble did not really have a business model - it evolved overtime to now in hindsight be recognised.
I am not sure FB is a fad - it has been around a while and has stuck. Can they monetize this to a level to justify $100bln I think the jury is out on that one.
The IPO price was way over the top. The fundamentals of the business don't support the IPO share valuation - or even the current share price for that matter - no matter what the price is today it is still over-valued.
@M Ross - I'm not sure who you are responding to but to offer to buy at a discount to the current price is idiotic. Why would anyone take you up on that when they can sell on the market at 3-4 times the price? I would happily short the shares if I could but not on a price that is way off the current market price. If you want to do this then do it at current market price, or you pay a premium for starting 'in the money'. You might also want to get your facts right about the level of profits. Your offer to buy at $10 (and only pay half now?) shows you clearly don't value the company at current market prices, so that's an own goal......
It was in response to an idiotic comment by Anonymous that FB will go down to $5 by end of trading first day.
Ah ok. I didn't interpret "at the end of the day" as literally being at the end of the first trading day. I took this to mean that a fair value, given a suitable passage of time, might be $5.
The original comment didn't stick as conentious when I saw it. My thinking went like this when I saw the original comment : "$5. $5!! Seems a bit cheap. But $100b/$1b = PE ratio of 100, current price = $40 / 8 = $5, implies PE of 100/8 = 12.5 so maybe $5 is a fair value if earnings stagnate" (not that I expect they will stagnate) then I moved on.....got distracted, forgot that comment, saw yours and thought "what the?". Sorry - no offence intended.
If I could short it I would - but not at $10, not at $20 - now I'm being greedy! I would happily short, as I'm sure others would, if I could at current prices.
facebook is overvalued at the moment. But at least it has significant future potential - if they can monetize their mobile offering. So long as they don't pi** off too many members along the way with overly intrusive ads.
Actually, the IPO evaluation in this case seems to have been closer to an accurate value than those in many other IPOs.
In this case, the shares are selling slightly below the initial offer. Not great for the underwriter and the mates of the underwriter who get in early on the book build - hence the lawsuits - but it's obviously a more accurate evaluation than those IPOs in which the price has jumped by 30-50% by the end of the first day.
In those cases, the underwriters obviously just suckered the companies to give some of their own wealth to the book investors and the underwriter.
Hence, no wonder the first investors are angry with the underwriter for not getting their standard chunk of free money.
very good comment
Web ads earn 1/4 of what a print ad earns - Mobile ads earn 1/4 of what a Web ad earns.
Perhaps the key to success will be Facebook currency/credits - tied in with their own mobile OS (think NFC).
Though the whole NFC/Mobile Payments industry is very fragmented right now.
Facebook also has opportunities re classic search.
DOH! THAT is EXACTLY my point.
Microsoft is a leading producer of 'puter software. Didn't you know?
And Google produces and maintains the leading search engines for knowledge and geography! Google earth. Both valuable services.
FB produces nothing.
FB will be reduced to a social APP , used on smarter phones made by google apple and samsung.
Face Less more like it , rather than face book , were was the value ? its just other peoples crap but on line !