Sunday, May 20, 2012

Winners and Losers in the Facebook IPO


Billionaires and Millionaires.
Some Facebook investors and employees had a very good day. A few of them became billionaires and quite a few became millionaires.

Facebook. The fact that there wasn't much of a pop in the stock after trading began means that Facebook left little money on the table when it priced the offering at $38 per share.

Selling shareholders. More than half the stock offered was sold by investors and employees who had gotten their stock privately before the IPO. The lack of a big pop means they, too, left little money on the table when they sold.

California. The State of California stands to collect something like $2 billion in taxes from sales of Facebook stock by state residents. With the state's finances in the fiscal ICU, that's like manna from heaven.

Short sellers. The fact that the stock closed barely above the offering price indicates that many shareholders are looking at Facebook as a short term play. Like wolves scanning a herd of caribou for any animal displaying signs of weakness, short sellers are always on the alert for flagging shareholder interest. They may find a juicy target in Facebook.


Nasdaq. The opening of trading in Facebook was delayed for "technical" reasons that are now being poked into by the SEC. Press reports indicate that order execution for many investors was sloppy and slow. Not the kind of publicity Nasdaq needed from the highest profile IPO of the year.

Morgan Stanley. MSCO got the highly coveted lead underwriter position. Then it had to earn its fee when the stock began threatening to drop below the $38 IPO price. MSCO may have bought a shipload of stock toward the end of Friday, when trading opened, in order to keep the price above $38. Tomorrow, the second trading day for Facebook, could bring more challenges.

Money managers. Mutual fund managers and other money managers like IPOs with big opening day pops. They use their market connections to score a big allotment of the IPO, and sell some of it into the pop, getting a fast buck that's needed. Most money managers don't match the S&P 500, and non-typical gains like IPO pops are important to help them stand out from the crowd. Facebook wasn't a good IPO for them.

Tech companies planning IPOs. The tepid Facebook pop may put a damper on IPOs planned by other tech companies. The "technical" problems encountered by Nasdaq, market of choice for tech companies, won't add to anyone's enthusiasm. If investors don't have a good time with a high profile IPO like Facebook, they'll be wary of other, less glamorous ones.

Mark Zuckerberg. Billionaire, just married, he's got to feel like he's at the top of the world. The market will disabuse him of that notion in a couple of trading days, at most. He'll learn that public company stocks are traded short term, which means that he's expected to deliver, every quarter on the quarter end. Whatever his long term goals for the company, the short term performance will have to be gorgeous, and then more gorgeous the next quarter, or the stock price will be hung, drawn and quartered (pun intended). It gets personal, too. One lousy press release from the company, and bad things will be done to his effigy. He'll be made to understand, not in a fun way, that short sellers will be a permanent presence in his life, trying to financially actualize schadenfreude. Sooner or later, one or more of Facebook's officers, directors and employees will leak inside information to family and/or friends, and embarrass the company when federal authorities swoop in. He'll feel betrayed, but he won't be able to prevent it. He'll feel every uptick and downtick of the stock's price, because shareholders will make sure he feels ticks. Any significant failings by the company will lead to his introduction to the most prominent class action plaintiffs lawyers in America. As SEC rules compel him to make disclosures about his compensation, perks, transactions with the company, holdings of company stock and a variety of other things, he might end up feeling like he has less privacy than the most effusive of Facebook users. Surely, Zuckerberg has already been counseled by his advisers about all of the foregoing. But the reality of his new life running a public company won't sink in until he lives the full, graphic experience. There's a price to pay for going public, and the bill collectors are gathering.

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