Facebook Orders Banks To Stop Leaking IPO Details 110
redletterdave writes "In the weeks leading up to Facebook's massive $100 billion initial public offering, Mark Zuckerberg reportedly told JPMorgan Chase, Morgan Stanley, Goldman Sachs and the other banks involved in the IPO to stop leaking information to the media. Zuckerberg was reportedly unhappy that the banks leaked details about his company's Wall Street debut, including the Feb. 1 date it chose to file its S-1 paperwork with the SEC. Facebook execs are also miffed about the subtle rivalry between Morgan Stanley and Goldman Sachs, which were jockeying to become the lead underwriter for the IPO, the largest since Google's $1.7 billion offering in 2004. The banks are heeding Zuckerberg's warning, urging their employees to keep quiet about Facebook's filing, because disobeying Zuckerberg's wishes could mean getting dropped from one of the most lucrative IPOs in recent memory. The banks stand to make $40 million from their deals with Facebook."
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No, the summary did that for them.
Re:banks make only $40 million? (Score:4, Informative)
Still sounds crazy low. Banking fees for IPO deals are generally 7% for "normal" sized deals (a few hundred million), and around 3% for large deals. You'd expect the fees for a $5B IPO to be around $150M. If they are doing it for less, it's because the value of the prestige and marketing value they get from this deal is worth a fortune to them.
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This however is one of those "deal of the decade" deals, which allows for a whole different level of competition between banks. 40 million USD is no pocket change, even for them, especially with marketing value of "we can pull a deal this huge off well".
Re:banks make only $40 million? (Score:5, Interesting)
It's the market capitalization that's crazy. Facebook revenue was about 4 billion last year. No company can support a 20:1 price/sales multiple. Multiples that high scream scam.
But it's worse than that. Zuckerberg is keeping control of the voting shares in a way that allows the other investors zero say in how the company is run. He will appoint the directors. He will tell them what to say. He will decide all by himself how much he spends on development and how much on salaries including his own and how much he returns to investors in dividends or stock buybacks.
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Only sort of though.
Any IPO is based on projected future revenue. I've said other places, facebook with 800 million users is running out of users that will generate much money, and it's hard to know how much money they can get per users. Sure, there are a couple of billion people in africa, india and china that don't have facebook, but selling seeds for pennies to them isn't really advertising revenue of much value. Then there's the very young and very old, who as a demographic won't ever have facebook p
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Any IPO is based on projected future revenue. I've said other places, facebook with 800 million users is running out of users that will generate much money, and it's hard to know how much money they can get per users.
They have ways of making money from you sheep that you haven't yet dreamed of.
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The selling of aggregate user data is their biggest weakness. They've been able to get away with a lot of stuff to this point because they were small enough (or the amounts of money were small enough) regulators didn't notice or didn't care. They may run into a lot of hurdles from regulators in every country moving to demand privacy controls.
There are lots of other ways to make money, I was attempting to be illustrative, not a market analyst or facebook executive. If I worked there I'd be looking to cash
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All the other potential revenue streams you ticked off are markets where Facebook would be late to the dance.
To value based on the assumption that they're going to grow to a $100 billion company would require that they have a business plan for doing that (not in evidence) or be uniquely positioned to take advantage of some foreseeable emerging market opportunity (also not in evidence).
What they have that's unique is a huge user base that, for the moment, likes to use their service. But there's nothing to s
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I was thinking 'total internet users' being counted multiple times. As facebook becomes more commercial I would expect to see more people with multiple accounts as well (professional and personal sort of thing).
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Yeah, your gedankenexperiment on GP's next company 'before you make your first sale' is **totally** the same thing as saying a 20:1 p/s ratio for *FACEBOOK* is too big. Facebook's so tiny they'll definitely **GROW** to fill that ratio. Just like Groupon. /sarcasm
Personally, I can imagine ways that they can grow into the ratio. Per-user revenue is much easier to alter than their customer count, obviously. Whether they do or not hinges on tapping into revenue streams.
Deciding whether they will succeed is t
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Yeah because "unknown startup with zero sales" and "company that's been around for the better part of a decade, has huge name recognition, and already makes millions of dollars" are exactly the same thing.
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*But it's worse than that. Zuckerberg is keeping control of the voting shares in a way that allows the other investors zero say in how the company is run.*
kinda like apple then.. what I'm interested is if he is going to pay dividends or not - to set it apart form apple mainly as an investment.
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No, he isn't. It's all right there in the Prospectus. As is what they will do with the $5billion. That money is going to paying the existing shareholders and employees. It states any profit from the IPO may be used to build up the company but they have no plans to do so. It says they may also invest in other companies, but again, they have no immediate plans to do so. It's all right there, on Page 34
Re:banks make only $40 million? (Score:5, Insightful)
But it's worse than that. Zuckerberg is keeping control of the voting shares in a way that allows the other investors zero say in how the company is run. He will appoint the directors. He will tell them what to say. He will decide all by himself how much he spends on development and how much on salaries including his own and how much he returns to investors in dividends or stock buybacks.
Good. Companies ran by boards in the interest of shareholders and not the business (not mutually inclusive) typically have a way of fucking over the business, the workers, and the product by driving incredibly hard for cheaper and faster. I think Zuckerberg has done a brilliant move with this. Other than simply retaining control he's also showing shareholders that the direction of the company is stilll in his hands - the same leader that managed to get 10% of the world's population using his product(I read this figure somewhere recently). Love it or hate it - there's something to be said for it.
Except it's not $100B. (Score:3)
Re:Except it's not $100B. (Score:5, Informative)
$5B is the amount FB will pocket with the sale of shares at the IPO price. The $100B number is the market value of all share @ the ipo price, give or take. I have heard as low as $75B.
Re:Except it's not $100B. (Score:4, Informative)
Right. The public offering is $5B in shares. The market cap of the preexisting shares is not a part of the public offering. It's often the number bandied about during an IPO, but it is not the actual size of the IPO.
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Apparently yes, given your reply.
Advice: no stock price pop (Score:5, Interesting)
Remember, a pop in the stock price isn't a sign of success - it's a sign that your underwriter priced your stock too low and you got shafted.
Facebook should have a clause that if the stock pops more than 10% on opening day the lead underwriter must pay them at least 70% of the lost proceeds:
Price: $100/share
Opens: $180/share
Payout from lead underwriter: $56/share
That'll make sure that the models are accurate. The only reason to go to these guys is to maximize the cash you get for your company. Your job isn't to make them and their clients more money.
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Remember, a pop in the stock price isn't a sign of success - it's a sign that your underwriter priced your stock too low and you got shafted.
It could also be a sign that the stock is wildly overvalued beyond expectations. VA Linux?
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Re:Advice: no stock price pop (Score:4, Interesting)
That's irrelevant, that overvaluedness could have gone into you pockets (you could have issued a smaller percentage of the company for the same amount of capital raising) if the IPO was priced higher to start with.
The big banks want undervalued IPOs. Sure it harms the "client" - but that client is a one off - that "I" part makes it unlikely you'll be doing it again after all.
However, those big institutional investor clients of the big banks - they like seeing the price of the stocks they just bought shoot up fast. And they'll be buying more stocks in future IPOs, so keeping them happy is well worth it.
Hence the big banks like to undervalue IPOs. Of course in this case they're screwing facebook. Couldn't happen to a nicer guy and all...
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Look at how Google went IPO. That's the right way to do it.
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If an IPO goes out and the stock stays near flat or slumps, it gives it bad momentum. Example: Pandora
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There's imprecise, and there's "we fucked up." My google-fu is weak tonight and I can't find a study showing different sector IPO first-day results. But there's this:
http://abcnews.go.com/Technology/wireStory/ipo-stocks-fared-15525164#.TzDCYJjRUyE [go.com]
Linkedin: priced at $45, closed at $94.25. Linkedin got screwed out of $45/share.
Zygna: priced at $10, down 5% on first day. Excellent! Zygna didn't lose anything.
Jive: priced at $12, closed up 25%. Not bad for the underwriters and their freinds.
Of course nobody wo
Re:Advice: no stock price pop (Score:4, Insightful)
Usually companies do a public offering of a chunk of their private stock to raise working capital, fund growth etc. In those cases the company wants to get as high a price as possible. It used to be the case that the banks would indeed shaft the companies by allocating stock to their preferred customers at a low price and letting the stock pop (giving profits to these "preferred" clients). After the dot com bust, NY courts have come down on this practice pretty hard.
In this case, Facebook is only IPOing 5% of their stock. So what price it is is sold is less important than having it sold at all. And even more strangely, the company has no need for the IPO proceeds. The prospectus specifically says that the reason for having the IPO is to have an opportunity for the privately held stock to be sold later on. It also says that no specific use for the 5 Billion has been found.
So in that sense they do want the stock to pop after launch -it gets everyone excited and hopefully the euphoria will last 6 months when the insiders can finally sell.
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fb would have had to start doing filing the paperwork anyways, due to the amount of shareholders already being numerous enough.
maybe it's more about giving the insiders, those guys who were paid with options, an actual way to cash in though.
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It also says that no specific use for the 5 Billion has been found.
I'll look after it for them for a couple of years til they make their mind up, if they like.
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A few points:
1. No underwriter worth their salt would ever agree to such a clause.
2. There is only so much you can model; a large part of it is market sentiment (especially for something like FB), which is quite hard to predict or gauge.
3. Being underpriced and volatile is better than being overpriced in the long run. If you're underpriced, your valuation will go up, and there is a greater demand for the unsold equity at a much higher premium. Being overpriced hurts that, and while profitable to the company
Apparently... (Score:3)
...Zuckerberg et al. don't know what "Leak" means...
Re:Apparently... (Score:5, Funny)
The banks posted it on facebook, and thought they had done so privately. Apparently not. I guess that 'no privacy' sword cuts both ways, eh zuckerberg?
Why? (Score:1)
Why is that piece of shit of a website worth so much?
(insert XKCD-of-the-day about sheeples here)
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People use the website. Selling Ads, they are able to generate an income/profit.
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but how? (Score:1)
But then how are all those 1% investment bank insiders supposed to find out enough about the IPO to make any money? ;^) ;^(
Clearly, Zuck doesn't know how things are supposed to work
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Holy good lord I didn't know you could cram 3 whole boxes of tinfoil on your head to make a hat, but I salute you, sir, you have done it!
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Normally, yes. But in this case (Occupy) it's pretty clear the MSM ignored it completely until the Nooscape was so overflowing that they had no choice.
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Things like homeschooling, citizens who use guns to defend themselves, proposals to shrink the power and size of government, representative currency backed by precious metals, precisely how the mortgage crisis happened, the discrepencies between the official explanation of 9/11 and the actual observed evidence that contradicts it, etc
You forgot to mention the Zionist-Communist conspiracy to create a New World Order ruled by lizards of alien origin.
PS that noise isn't in your head, it's the invisible black helicopters spying on you.
However... (Score:1)
Facebook did, however, sell the names, addresses, and friend lists of every user who has made negative comments about the Wall Street firms involved in its IPO.
Banks reply ... (Score:5, Funny)
Re:Banks reply ... (Score:4, Funny)
If you do that again, I swear I'll try to remove you from the public offering but use the wrong page and just hide you from it instead!
--Mark Zuckerberg, a.k.a BiZ MARKie
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They won't be that courteous. Instead, they'll do it more like Zuckerberg would.
"Privacy is dead...bitch."
SEC filings public documents? (Score:5, Insightful)
Aren't SEC filings like this public documents?
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Yes, they are. What seems to be the issue is that everyone in the blogosphere knew about the filing the day before it was filed.
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Re:SEC filings public documents? (Score:5, Informative)
1) SEC does not like clients advertising/talking to media etc. in the quiet period prior to IPO. If everyone knew when the documents were being filed, SEC could then treat that period too as a quiet period and would hinder facebook's advertising. It can also block any private capital raising that facebook is doing.
2)It affects prices of related stocks. Look at how linkedin, zynga stocks jumped the day after facebooks filings. It would have been easy to buy those stocks the day before filing and sell it the day after for a significant profit. It is true that linkedin/zynga stocks should not move on facebook news, but certainly their volatility increases when facebooks revenue metrics are released. So anyone buying options on these related stocks the day before profited
3) If at the last minute facebook wanted to change their bookmakers ( non-lead bookmakers can be changed easily enough), it would be difficult after the news leaks.
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Sec filings are available on to the public thru edgar.
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Actually, no. A lot of filings are, yes. But these kinds of filings are not public at all until later. The point is, to use a crude metaphor, like playing pool. In order to keep things above board, you have to call your shot before you make it. But on the flip side, calling your shot can also harm your business, because you also have the chance to back up and change your mind about when you make your shot and how (unlike pool). So the information is privileged...incredibly so...and as such, any discls
Oh The Irony (Score:5, Funny)
Sounds like Zuckerberg forgot to change the default privacy settings from public to private.
Opt-out (Score:1, Funny)
Maybe Facebook should adjust its privacy settings.
Privacy and Facebook. Hmmmm. (Score:3, Insightful)
Facebook - the new IPO model (Score:5, Insightful)
Basically, there are reasons to love this model for everyone involved except the John Q public who get shafted on IPO day with stock that has already had the full value sucked out by the private investors.
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Re:Facebook - the new IPO model (Score:5, Interesting)
Your post makes sense, but I lose you at John Q public getting shafted.
The public, meaning those not rich enough to access the private funds that typically require accredited investor status (5mil+), are shafted because by extending the time companies stay under the private umbrella, a company can achieve its maximum valuation by IPO time. Companies no longer need to access public markets to get the capital they need to grow, IPOs become less about acquiring funding and more about cashing out. Even the private investors are forced to take a larger gamble on a company under no obligation to provide the level of disclosure they would going public. The big winners are the banks which get to skim in the private shares transactions at much higher rates as they are gatekeepers to limited private shares, as well as companies like Facebook that get funding without the disclosure.
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True, this type of behavior requires and benefits from the "sucker born every minute" adage. However, this only screws the segment of John Q. Public that invests into the stock market without understanding how the stock market works. Every forum I have seen discussing the Facebook IPO compares it to other tech companies and highlights the absurd price-to-earnings ratio, leaving the buyers on IPO day as pure speculators. I understand th
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John Q Public has *absolutely* no business getting in on an IPO. That's just sheer insanity from an investment standpoint. IPOs are always offered to institutional investors, because institutional investors understand the risks involved.
The mess ten years ago was just proof that casual investors have no business being involved in IPOs. That's gambling, not investing.
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Not if John Q Public doesn't buy the ridiculously overvalued IPO stock (and makes sure his pension fund does likewise). There's nothing like a failed IPO to tell a company that you're not falling for their scam.
even worst... (Score:1, Funny)
Lesser of Two Evils? (Score:3, Interesting)
Gordon Gecko... (Score:4, Insightful)
Why no auction? (Score:3)
Why don't more companies use an IPO auction format so anyone that wants shares can get them? Google did it and it seemed to work out ok for them:
http://online.wsj.com/article/SB125045821555835141.html [wsj.com]
It seems more fair for the individual investor - if they want in on an IPO, they can do it, they don't have to be an "insider".
It seems better for the company - their stock gets issued at the maximum price the market is willing to pay, so they get the best valuation they can get.
Of course, it's bad for the banks since they don't get insider shares to give to their preferred investors who all get to share in the "pop" after the IPO. This pop does no one any good except the insiders that got to buy the shares at the IPO price. It's money that the company left on the table, they should have priced higher.
Oh wait, I guess I answered my own question - banks would never go for it for most companies. But, like Google, Facebook had the clout to force it on them.
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Of course, Facebook will raise $10 billion. Last year they had $1 billion in profit so they don't need to go public at all. But with > 500 shareholders, they're required to file the same paperwork as publicly traded companies (Thanks, SEC!).
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The banks probably cut Zuck&Co in on the deal, so they wouldn't.
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The price difference between the auction format and the IPO format only affects the limited amount (5%) of the stocks issued in the primary offering. The follow on offerings are at the price set in the market which reflects (hopefully) the fully informed pr
waaaaaaaaaahhhhhaaaaaa.. go away cry baby! (Score:2)
", Mark Zuckerberg reportedly told JPMorgan Chase, Morgan Stanley, Goldman Sachs and the other banks involved in the IPO to stop leaking information to the media."
Hmmmm.. seems some body wants it both ways....
So hows that feel ?????
Ahahhhhh poor whiner baby not getting it his way... aaaaah.. too bad loser.
When are you facedorqs going to wise up and quit using this crap and twidiot as well.
To the banks, KEEP LEAKING THE INFO!
For those that don't know it Der Furher has selected things for the setup of the com
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ref [wikipedia.org]: Google's initial public offering (IPO) took place five years later on August 19, 2004. The company offered 19,605,052 shares at a price of $85 per share.[46][47] Shares were sold in a unique online auction format using a system built by Morgan Stanley and Credit Suisse, underwriters for the deal.[48][49] The sale of $1.67 billion gave Google a market capitalization of more than $23 billion.[50]
So Facebook is getting them $5b, for a value ranging from $50b to $100b. Google was $23b. So Facebook could be
On Privacy (Score:2)
So, let me try to get this straight. Is Zuckerberg complaining about a corporation that facebook is compelled to interact with using facebook's "personal" data in ways that, while protected by his terms of agreement with said corporation, are disliked and overly revealing, and he wishes they would stop or at least have explicitly asked him first?
To that, sir, I say, suck it.
Oh dear (Score:4, Funny)
Is facebook worth $100B? (Score:1)
According to what I have read, last year's profits were about $1 billion. Very impressive actually, but not worth $100 billion.
It seems to me that facebook has to be it's membership saturation point, so no super-fast growth.
I could see facebook worth $20 billion, but not much more than that.
Fiduciary Duty (Score:2)
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Zuckerberd's Famous Pig (Score:2)
He's,some pig,some pig
Some terrific, radiant, humble pig
He is some pig
Oh wow look at him now
Zuckerberg's famous pig
Sooey, what do you see
The greatest hog in history
Fine swine wish he was mine
What if he's not so big
He's some terrific, radiant, humble
Thingamajig of a fine phenomenon
My land isn't it grand
Zuckerberg's famous pig
Golly, you got to agree
He's a real celebrity
Fine swine, wish he was mine
What if he's not so big?
He's some terrific radiant, humble
Thingamajig pig
The terrific,.radiant, (Humble x2
Ironic! (Score:2)
Isn't it ironic that Zuckerberg doesn't like it when the privacy of FaceBooks IPO is violated when his business model is to gather as much private information about the users of FaceBook as possible. There is an old saying that seems to apply here...
"What's good for the goose should be good for the gander!"
slight correction (Score:1)
Um, how? Whose ass did they get those numbers from, Mark Zuckerberg's? They had their first negative membership month already, a gigantic competitor just popped up, just about 100% of their customers hate them, and their stocks are overvalued on top of all of that. How is anyone going to make a penny on this bullshit? Correct answer: people who show up to the bankruptcy server auction. I would suggest investing heavily in U-Haul reser
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"The banks stand to make $40 million from their deals with Facebook" Um, how?
You seem to be confused. The Banks, i.e., Investment Banks (Not actually banks at all [though JPMorgan Chase has a bank subsidiary), more like large block brokers and mutual fund combo companies) will make somewhere near $40 Million in fees from Facebook and the IPO buyers for their brokerage and marketing services.
I'll take 10k worth please (Score:1)
I would like to purchase 10k worth of shares please.
Sincerely
Poor unemployed IT worker
Ironic (Score:2)
Nothing like a little cooked-up drama... (Score:1)
... to generate a lot of media buzz and excitement around an IPO.
It's reality-TV on Wall St.