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Facebook Businesses The Almighty Buck Technology

Facebook IPO Stumbles Out of the Gate 423

Posted by Soulskill
from the go-big-or-go-home dept.
Facebook's much-hyped IPO kicked off today, but an anonymous reader points out that things didn't go quite as smoothly as investors hoped. "Public trading didn't get underway until about 11:30 a.m. ET, half an hour after it was supposed to. The delay was likely caused by the huge amount of interest in the stock – especially by retail investors. In the first few minutes of trading, Facebook shares were only up between 5 and 10 per cent and by noon were essentially back down to the IPO price of $38. Many observers had expected the stock to double in price by the end of the day, if not sooner." The NY Times has a data visualization showing how Facebook's IPO compares to other tech IPOs throughout the years, and how the first day of trading treated all of those companies. Meanwhile, the debate is lively over whether the social networking giant will be a good investment. "The banks helping take Facebook public want us to value this 8-year-old upstart at as much as $104 billion, more than Disney or Kraft Foods, though those companies earn three and four times more. That top valuation is also more than 100 times Facebook's earnings last year, versus 13 times for the average company. At such a high price, it will take years for this so-called earnings multiple to fall to a more reasonable level, and that's assuming the company can maintain its torrid earnings growth."
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Facebook IPO Stumbles Out of the Gate

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  • ObNelson (Score:5, Funny)

    by Anonymous Coward on Friday May 18, 2012 @01:29PM (#40044077)

    (points) Ha ha!

  • by cpu6502 (1960974) on Friday May 18, 2012 @01:30PM (#40044101)

    A bunch of investors throwing tons of money after dot-com companies on the belief that these companies, despite having no earnings, would somehow grow big. Then in 1999-2000 the bubble burst.

    Today's investors are not going to make the same mistake of going after another dot-com company that has almost no earnings. The memory of 13 years ago is still too fresh. (Plus many of them are probably short on cash due to the ongoing recession.)

    • by SimonTheSoundMan (1012395) on Friday May 18, 2012 @02:39PM (#40045171) Homepage

      A bunch of investors throwing tons of money after dot-com companies on the belief that these companies, despite having no earnings, would somehow grow big.

      Just like Facebook then.

      Their income and profits are that of a medium sized business, not that of a top NASDAQ trading company.

      Facebook are already stuck in the dinosaur age of the Internet. Facebook is a web 2.0 company, people are moving to mobile and Facebook have nothing to answer. They are not inventing or innovating, just acquiring other companies.

      More businesses are going to be overvalued the bubble will pop and the fallout will be huge. Facebook will survive by the skin of their teeth, just like AOL, Yahoo and MySpace do today.

    • by schnell (163007)

      A bunch of investors throwing tons of money after dot-com companies on the belief that these companies, despite having no earnings, would somehow grow big.

      To be fair, there's nothing inherently wrong with that. Amazon.com, for example, once fit exactly this description. In fact, it lost a lot of money for a long time before it ever turned a profit... by that account, Facebook is actually ahead of the game.

      The more important issue is that only one out of every 20-50 of these companies ever ends up realizing their promise. If you are an investor who understands that risk, then it's fine to invest in tech startups with big dreams and little or no positive cashfl

  • When they (Score:5, Insightful)

    by Loughla (2531696) on Friday May 18, 2012 @01:31PM (#40044121)

    announced this IPO, I was skeptical. Then they amended it, eight times (I think). Now, it seems to me that we've blown a rather large bubble - as the article says, this 104 billion is 100X their earnings last year. I wonder which set of retirees or naive persons will lose their asses on this one when it pops.

    I remember when, recently, myspace was quite large. Does anyone else have a myspace page still? Now imagine if you owned 100 shares of that company. . . . . Now imagine your investment person has most of your retirement tied up in that company. . . .

    Thoughts?

    • Re:When they (Score:5, Insightful)

      by MyLongNickName (822545) on Friday May 18, 2012 @01:37PM (#40044233) Journal

      If you are risk averse, stay away from IPOs? This ain't rocket science... the more risk you are willing to take, the higher return you will get long term. If you are not able or unwilling to stay in for the long term, or a drop in your portfolio will keep you up at night, play it safe. I am a moderately aggressive investor as I have a 30-40 year investment timeline and a Finance background. My mom who works for the government, hates risk and will be retired in five years should have a more passive investment strategy.

      • Re:When they (Score:5, Insightful)

        by rmstar (114746) on Friday May 18, 2012 @02:42PM (#40045191)

        the more risk you are willing to take, the higher return you will get long term.

        No, because if this were true, then risk would not be risk. That is, if engaging in risky behavior somehow was safe, then it would not be risky.

        The more risk you take, the higher the chance that you will end up sleeping under a bridge.

        • Re:When they (Score:4, Insightful)

          by MyLongNickName (822545) on Friday May 18, 2012 @03:13PM (#40045513) Journal

          Efficient market theory has one major tennet. Basically that the overall demanded return is directly proportional to the riskiness of an investment. While markets are not 100% efficient, they are pretty efficient and multitudes of studies show this risk/reward expectation holds up in real life.

          Risk is safe if you are able to engage in multiple non-correlated risks (your car insurance company does this well) or have a time horizon that allows you to ride out short-term (sometimes short-term can be 20 years or more...) downturns.

          Please don't equate financial risk with jumping off of a bridge or even stupid risk like buying into your brother's Ponzi scheme. Financial risk has a precise meaning and it does correlate with long-term reward.

    • 1) Anyone who puts most of their retirement in one company is a fool.

      2) Did you really just compare myspace to Facebook and imply Facebook will go the same route? That's laughable for the foreseeable future.
      • by Loughla (2531696)

        foreseeable future

        Define foreseeable future. Please.

        And yes, yes I did.

      • Re:When they (Score:5, Insightful)

        by V-similitude (2186590) on Friday May 18, 2012 @01:47PM (#40044403)

        2) Did you really just compare myspace to Facebook and imply Facebook will go the same route? That's laughable for the foreseeable future.

        I'd love to hear why exactly that's so out of the question.

  • I'm bummed out that Put options on this overpriced turkey won't start trading for six days. (The mechanics of genuine Shorts are too ugly for my taste.)
  • by MyLongNickName (822545) on Friday May 18, 2012 @01:34PM (#40044177) Journal

    A company issues an IPO and the closing price ends up at the same price as the IPO price? Not only is this not "stumbling out of the gate", but it means it was done right. If the price jumps too much, the founders of facebook lost out on a lot of money. If it drops, then the initial investors were suckers.

    Whether Facebook is able to increase earnings remains to be seen. My gut is it will increase substantially, but not enough to justify the current P/E ratio once risk is factored in. But others think the opposite. So, the investment bank did a very good job in pricing.

  • GOOG is undervalued (Score:5, Interesting)

    by michaelmalak (91262) <michael@michaelmalak.com> on Friday May 18, 2012 @01:35PM (#40044189) Homepage

    FB knows your stated desires. GOOG knows you're hidden desires. FB gets you when you're goofing off. GOOG gets you when you're actively seeking something and you're ready to buy.

    GOOG is undervalued.

  • Stumbles? (Score:2, Insightful)

    by Apotekaren (904220)

    They NAILED the IPO, and neither undersold the stock(like LinkedIN did) and lose money that way nor did they value it too high and scare off any potential investors. I'm surprised and impressed.

    Sure, for the guys holding the stock at FB it's a letdown, but the company nailed it.

  • by rmcd (53236) * on Friday May 18, 2012 @01:37PM (#40044229)

    The press coverage of Facebook's IPO is completely idiotic. For years the investment banks have been sticking it to companies doing IPOs. If the stock gets sold at $38 and it ends the day at $100, that means the company *should* have raised more than twice as much as it did. And it means that the employees participating in the IPO also got shafted. The people who benefit in that scenario are the privileged investors who get to buy at $38 and sell a few hours later at $100.

    If Facebook ends up close to $38 at the end of the day, it will be a rare example of the stock having been priced correctly at the start. Where it goes from here is anyone's guess, but I have increased respect for Zuckerberg. Google had a different IPO process but also didn't give away a lot of money. They knew what the banks were trying to do to them.

    • by demonbug (309515) on Friday May 18, 2012 @03:57PM (#40046023) Journal

      Others have mentioned the underwriter issue, but take a look at this article [latimes.com]. Basically, the underwriters of the IPO stepped in every time it looked like the stock might hit $38 in order to avoid it going negative. So they end up with more stock than they planned on, which they will be hoping to offload in the next few weeks. The idea being that if the stock tanked out of the gates it would shatter confidence and they would lose money, but if they can maintain even or positive valuation for a little while it will increase investor confidence and they will be able to offload these extra shares bit by bit. Basically perfectly legal manipulation of the stock price in an attempt to assuage investor concerns. The fact that the stock didn't really pop does seem to suggest that they didn't undervalue it (which has been a favorite game of underwriters in the past, as it puts more money in their pockets), but you can't really tell from the trading results whether it was overvalued because, at least for now, there are major banks protecting the stock price.

      Personally I think the stock is rather overvalued (I'd say by about 2-3 times based on potential for growth; I just don't think there is that much headroom for user growth, and thus far they haven't been terribly good at monetizing their vast user base), but then I'm not a trader and my talent for picking stocks has yet to make me rich (or even a significant profit).

  • I'm terrible with money (poor impulse control, I don't think it's because I'm credulous, stupid, or have poor instincts although I guess I wouldn't know), so I don't have the cash to invest in this, just like I didn't with Google or Apple, when people were poo-poohing that stuff too. I realize there's confirmation bias and all, but I haven't made a prediction that turned out wrong yet (I thought people were crazy for buying MS stock in early 2000, that's the only other thing I've been willing to predict), s

    • Two points.

      First - making any other predictions? Let us say you have a 50/50 chance with FB. In 5 years you could be right because you were perceptive or lucky. Statistics won't tell you which. You need to make a lot of predictions.

      Second, why don't you try some type of forced investment planning? Something like investing in your 401(k) and only checking and rebalancing your portfolio once a year? Promise you will put 50% of your next pay increase into savings? If you know you have poor control you can set

    • by geekoid (135745)

      Since people don't remember when they where wrong, you probably have been wrong.

  • Zynga Tanks (Score:5, Interesting)

    by chill (34294) on Friday May 18, 2012 @01:49PM (#40044435) Journal

    No comments about Zynga, the makers of Farmville, tanking?

    Twice during the day (so far), their stock dropped more than 10% in 5 minutes and resulted in a halt to trading.

    http://money.cnn.com/2012/05/18/markets/facebook-social-media-stocks/ [cnn.com]

  • Curious (Score:5, Interesting)

    by rabtech (223758) on Friday May 18, 2012 @01:54PM (#40044507) Homepage

    I'm curious if price discovery is accurate right now since NASDAQ isn't delivering execution notices for FB orders. I know eTrade was down earlier (even the public website) and Fidelity has a notice that FB trades are stuck and have been since it started trading.

    All that makes me curious how many orders are stuck out there in limbo land? Will people find out tomorrow that the order they thought was cancelled got filled?

    Seems like a big screw up that NASDAQ doesn't want anyone to know about. I don't think you could have mishandled an IPO any further.

  • by wjcofkc (964165) on Friday May 18, 2012 @02:02PM (#40044629)
    +1.18 / +3.10%

    If they close in the red there first day of trading, what will it mean to investors and facebook?
  • Facebook's mission (Score:5, Insightful)

    by QuietLagoon (813062) on Friday May 18, 2012 @02:07PM (#40044707)
    Mark Zuckerberg said at the opening bell ceremony that "Our mission is to make the world more open and connected."

    .
    I wonder if Mr. Zuckerberg knows that the Internet has beat him to it.

    • Dude! They're providing you flagpoles by which you can air your dirty laundry to the public. Open and connected? Duh!

  • by Burning1 (204959) on Friday May 18, 2012 @02:21PM (#40044939) Homepage

    I've seen a few comments suggesting that the failure for the stock to rise above the IPO price is a sign that the stock was right priced at the opening.

    I don't understand this statement. Is it possibe for the stock to go significantly below the IPO price at this point? I'm sure that the employees with stock options are locked in, and unable to share. Not sure if similar agreements exist with the early investors, but I suspect they do.

    How is this right pricing? Seems like the stock really can't go any lower.

  • by SuperCharlie (1068072) on Friday May 18, 2012 @03:21PM (#40045581)
    Im no stock genius..far from it.. but to me (puts straw in corner of mouth and starts to chew) seems like a big game of duck duck goose when you produce no tangible, as in I can touch it, product. So I buy it, you buy it, he buys it, she buys it and last one to sell.. well.. theres your goose.

    As far as FB goes.. I have to say Im surprised theres not more ducks lining up to play the game, but then again, the CDO's pretty much knee-capped all the big money and I suspect they are still licking their wounds.. (spits out straw)

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