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Hot Topic NBR Focus: GMO
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Facebook fall accelerates, Nasdaq prepares compensation plan

Once again, the social network suffers as broader Nasdaq rises. Its shares hit yet another low. The Nasdaq announces a compensation plan.

NBR staff
Wed, 06 Jun 2012

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.

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.

NBR staff
Wed, 06 Jun 2012
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Facebook fall accelerates, Nasdaq prepares compensation plan