Walt Laws−MacDonald | Show Me The Money!
Published: Thursday, October 25, 2012
Updated: Thursday, October 25, 2012 00:10
So what happened? We left off last week with shares of the eight−year−old company pricing at $38, raising $16 billion and making Facebook’s IPO the second largest ever.
I nerded out the morning of the IPO. Fresh off my post−finals high, I had prepped for the morning with a few bagels and probably a little too much coffee. I started my CNBC binge around eight o’clock, with shares of Facebook scheduled to start trading at 11 a.m.
BlackBerry in hand — and no, New York Times, I am not embarrassed by my BlackBerry, thank you very much — and laptop in ... lap, I was prepared for a marathon of news, news−analysis and analysis of that analysis.
The first official event came at 9:30 a.m., when the NASDAQ exchange opened with Zuckerberg and Co. remotely ringing the bell from their massive Menlo Park headquarters. The scene looked more like a concert than a stock offering.
CNBC live−streamed shots of the complex throughout the morning, as employees made their way to a temporary stage in the wee hours of the California morning. Ringing the opening bell is a festive occasion for any company. Facebook took it to a new level with an all−out party.
As I watched the clock in nervous anticipation, I placed a limit order — meaning that the shares would be purchased below a certain price, the limit — for a few shares. Nothing huge — just enough to feel like I was part of the event. And then 11 came and went... No trade confirmation. I cancelled my order and reentered it. Nothing.
Then the NASDAQ reported that trading would be delayed by 30 minutes. “Ok,” I thought. It’s a large offering, they should get it right.
But they didn’t. Even after trading officially began after 11:30 a.m., orders weren’t confirmed for the stock for another two hours. Traders small and large had no idea what their positions were. Did I own my three shares? Did Morgan Stanley own their three million shares? The stock opened at $42.05 and the price continued to go up and down, but most of the world was in a sort of limbo state.
The stock did not double on the first day. Shares briefly broke $43 that first day, but closed at $38.23, just barely above the initial price. The stock’s underwriters — the banks that sold the first shares — had come in to buy shares at $38 to support their investors.
In the days that followed, it became clear that the NASDAQ should have delayed trading until they really knew what was going on. The NASDAQ has since put aside $62 million to compensate the brokers affected by the delays, but the tech exchange has received both heavy criticism and lawsuits for their handling of the IPO.
But that doesn’t explain Facebook’s precipitous drop since May. Investors have not “liked” the stock, and although a plethora of factors go into its valuation, most of the fall can be traced to its earnings.
The stock’s initial fall was due to a warning that Facebook gave to the biggest underwriters of the IPO, essentially stating that its second quarter results would be sub−par. This information wasn’t available to retail investors until several days after the IPO.
When those second quarter earnings were publicly released, they disappointed the market, sending the stock to a new low of $22.28.
Shares now stand at less than half the IPO price. Investors of all shapes and sizes learned a lot from the Facebook IPO, but Public Enemy sums it up pretty well: “Don’t believe the hype.”
Walt Laws-MacDonald is a sophomore majoring in quantitative economics. He can be reached at Walt.Laws_MacDonald@tufts.edu.