SEC Calls For Review of Facebook IPO 267
beaverdownunder writes "After losing another 8.9% of its IPO value in its third day of trading, SEC Chairman Mary Schapiro has called for a review of the circumstances surrounding Facebook's IPO on the NASDAQ late last week. Unable to sell Facebook short, investors have instead taken to short-selling funds that owned pre-IPO shares as revelations come out that the underwriters involved revised their Facebook profit forecasts downward in the days before the offering without similarly revising the opening share price. Meanwhile, Thomson Reuters Starmine has come out with a post-party Facebook estimate of a meager 10.8 per cent annual growth rate, valuing the stock at a paltry $US9.59 a share, a 72 per cent discount on its IPO price, signaling that the battered stock may not have found the bottom yet."
FUBAR (Score:4, Informative)
"Investors were still shaking their heads over the botched opening trading of Facebook when Reuters reported late Monday that the consumer internet analyst at lead underwriter Morgan Stanley cut his revenue forecasts for Facebook in the days before the offering.
JPMorgan Chase and Goldman Sachs, which were also underwriters on the deal, each revised its estimates during the road show as well, according to sources familiar with the situation."
From what I've been reading and listening to that information didn't come out to everyone. That's just awful and this IPO seems like a big mess.
On the plus side, the market hasn't been going crazy so it seems that the new tech bubble may not be all that bad.
Re:When Zuckie himself is selling shares (Score:4, Informative)
Of course he's selling some of his shares. That's pretty well the whole point of this operation, letting the senior people cash out.
It's not like they need cash to put into R&D or anything.
Re:Hard to value (Score:5, Informative)
HOW was this a surprise? (Score:5, Informative)
I posted this on a previous article Friday after about *5* minutes of "research". If someone investing large amounts of their own money can't do this same trivial research, they deserve what they get.
Summary: Facebook was valued about 3-4x multiple of what Google was at its IPO with similar financials, and that *without* the literal explosion of revenue income that Google was experiencing at the time. It should have been priced closer to $15-20 (at the most!), with a *very* conservative forecast for growth (ie. expecting it to triple in a year like Google without the growth to justify it is investing in fantasyland!)
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Google had $3.2B in revenue in 2004, and their IPO made them worth about $24B. Their net income the quarter preceding the IPO was $80M, and diluted EPS was $0.30.
Facebook had $3.7B in revenue in 2011, and their IPO made them worth over $100B. Net income last quarter was $137M, and EPS was $0.09.
Revenue and income are clearly in the same ballpark, but valuation and EPS sure aren't. Seems to me FB is in fact way overvalued right now...
And even more interesting to note is Google's revenue and income took off like a hockey stick in the quarters following their IPO (and thus so did the stock). I just don't see Facebook's revenue doing the same. There may soon be a lot of disappointed investors who naively assumed FB stock would be going the same route as GOOG just because it's a "trendy company" rather than actually looking at the financials...
Re:WWWBD? (Score:4, Informative)
I don't see what's misleading about, "she pays a higher percentage of her income as tax, even though she makes a tiny fraction of what he does".
Certainly he wasn't confused when he said it.
Re:Facebroke.. (Score:4, Informative)
That's true for the percentage of restaurants that require the 'in' crowd to be profitable.* That's not true of all restaurants. That's not true of *most* restaurants.
Slashdot has been saying that ever since Facebook debuted - eight years ago.
*Generally because they're over tightly tied to a theme or a trend. They literally can't with the times without cannibalizing themselves. Most don't need to, and sail along for years or decades if they survive the first year or so.
Re:Uh-Oh! (Score:5, Informative)
*Somebody* was a naughty little corporation, and didn't pay enough in "campaign contributions", lobbying , and political favors, hmm?
Let their example send a warning to you others out there that think you can just go around doing business without us getting our "vig", like it was a free country and open & fair marketplace or something!
What the hell are you talking about?
Facebook's IPO was a clusterfuck from one end to the other.
The insiders got greedy and bumped the # of shares offered by 50%.
The main underwriter, Morgan Stanley, quietly issued negative recommendations for Facebook and allegedly told their biggest clients first.
NASDAQ (allegedly) knew their system was broken before Friday, but went ahead with the IPO.
NASDAQ caused prices to plummet again on Monday, with their "oops we fucked up" paperwork having a noon deadline.
The unsophisticated stock buyers (mom & pop) saw the colossal mess and stayed the hell away.
So many things went wrong that it was inevitable the SEC would get involved.
Re:When Zuckie himself is selling shares (Score:2, Informative)
derp. at 38 it was worth 100x forward p/e, that's more than Amazon.
At apples p/e it's more like 4$/share.
The pundits say it's a strong buy if it gets to 28, but just about everyone says, don't buy until they file an earnings report. Flashcrash among all the tech stocks leading up to the IPO was hilarious and heartbreaking.
Re:Super tired of these two banks. (Score:5, Informative)
Imagine how uncool BP is. 303B in assets, and is worth 152B.
Actually no need to imagine. But really given the choice would you invest in a company that is undervalued, makes a tangible product used by billions world wide and is in continuous demand, has a history of high profits and steady dividend payments? Or would you rather a company which has assets which are mostly intangible, who haven't made a decent / steady profit yet and doesn't really know how to monetise what it has?
I agree with one of the GPs, anyone buying into the Facebook IPO really got what they deserve.
Re:When Zuckie himself is selling shares (Score:5, Informative)
Actually, due to the way that the IPO deal was framed, Morgan Stanley didn't lose any money in propping up the share price. See http://en.wikipedia.org/wiki/Greenshoe [wikipedia.org]. That's a bit hard to follow, but basically, Morgan Stanley started the IPO by selling more Facebook shares to the public than they bought from Facebook. This leaves Morgan Stanley with a net short position that they have to cover. If the price of the stock goes below the issue price, they cover it by buying back the excess shares they sold, which also happens to prop up the post-issue price. If the price goes above the issue price, they cover it by exercising an option granting them the right to buy those shares from Facebook at the issue price, effectively increasing the size of the issue.
That said, while Morgan Stanley may not have directly lost money here, they just plain fucked up this IPO and it may hurt their IPO underwriting business.
Re:Super tired of these two banks. (Score:5, Informative)
Yes they would get theirs and no Romney won't do it, neither will Obama. We need a real outsider. Had we not done the bailouts and let AIG go down, they would have most likely taken Goldman, and second tier investment banks wit them. JPM would most likely have survived but it would have been pushed out of the F50 for certain.
We would all be better off in the long run. The great thing about capitalism is its supposed to off mobility; for that to happen the wealthy must be allowed to fail. What we have today is not capitalism its closer to feudalism.
Re:Super tired of these two banks. (Score:2, Informative)
I find any ideological opposition to regulation curious.
- I find it curious that you find it curious.
Are you aware that the current crash came after a period of deregulation of the financial industry comparable only to what happened before 1923?
- are you aware that all of the regulations into financial industry and all other industries were passed in the 20th century?
I know that you are unaware that you are wrong.
1. Before 1923 there were much fewer regulations than any time after it.
2. Deregulation is a myth. About 15000 new financial regulations were created during the Bush era. In total there are over 100,000 various financial regulations concerning banks, investment companies, brokerages, exchanges, etc.
3. Real deregulation would have increased competition in banking. In reality there is more an more regulation and the competition in banking and finance is non-existent. There are no new banks, there are no new investment brokers, there is nothing new happening in the business. In fact there are much FEWER banks and much FEWER investment brokers in USA. Hell, USA even lost an exchange. [crainsnewyork.com]
you'll find not only that the current crisis is nothing new
- maybe you should read my journal and go over my comments before offering your suggestions.
The current crisis is indeed nothing new, it is a logical continuation of the same thing that has been in the works since the Federal reserve was established and especially since Nixon defaulted on the dollar.
Glass-Steagall had nothing to do with the credit bubble of the last decade and the current one and the one before and the one before and the one before and the one before.
Glass-Steagall was actually put in place to counteract the moral hazard created by the FDIC, but Glass Steagall is not the culprit in the credit bubbles, the culprit is Federal reserve bank, Treasury and Congress, which pushed forward various credit expanding agenda.
In your no-regulation world, how would you avoid that a fireworks factory is setup right next to your house (or maybe a nice nuclear waste treatment plant)?
- Federal regulations have nothing to do with local zoning bylaws, however taken to the logical conclusion, should I not want a firework factory or a nuclear waste treatment plant near my house?
The regulations and laws that are created by the government, allow private property rights to be dismantled at the whim of the politicians and their most connected business bodies. The only thing that is necessary to prevent any problem of pollution is to adhere to very strict private property laws and abolish all publicly owned assets, because again, they are the moral hazard.
The gov't doesn't have a problem with a company destroying a resource near you, the government provides liability protection for companies doing it. [cnn.com]