The Facebook IPO post

I was  out at a meeting yesterday when the Facebook IPO got under-way and watched the screen as the Facebook share price didn’t do a lot.
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This has been called a lot of things: dud, disappointment, failure. I think that these reflect disappointment from a speculator point of view. My own reaction was of being quietly impressed; despite the volume of trades that happened the share price closed within 23 cents of the offer price.

The banks involved in placing the shares had managed to price Facebook shares optimally; so the company didn’t leave cash on the table and would be able to employ the maximum amount of available capital for further expansion. Employees selling their shares got the maximum revenue from the market to buy that new gold-plated Prius with the spinning rims.

Compare and contrast this experience with a number of dotcom businesses like VA Linux, whose share price went up ten-fold on the first day of the IPO because banks used to under-price stock and often place it with their friends. A classic example of this was the famous ‘friends of Frank‘ (Quattrone).

I was asked about the IPO a good while ago by David Moth and published my responses and the context of those responses on this blog. Re-reading it was quite scary how prescient some of the stuff was:

  • My comments on Facebook’s advertising business was mirrored by the Forrester Research report which provided a bearish backdrop to the week running up to the IPO
  • My comments about small investors were on the money, I was surprised that there wasn’t more of a bump or even a negative close to the first day leaving small investors burnt; otherwise claiming this a win. I am surprised there isn’t more of a market on second market for hot stocks
  • Facebook tweaked the amount of shares available in the IPO by increasing the amount on sale by 50 million or so shares so there wasn’t the substitute buy for Zynga and instead the stock pancaked. I also think that Facebook substitute buy came in way before the IPO around the time it was announced when there was a pronounced rise in Zynga’s share price so the level of upside was already priced in

Disclaimer: this doesn’t constitute investment advice or a recommendation to buy stocks. I am not a financial services professional nor do I profess to be. If you want investment advice, pay someone who does this for a living for it.

More information
Zynga IPO and thoughts – renaissance chambara
The Facebook IPO post – renaissance chambara
US shares skid as Facebook IPO stumbles
Facebook debut disappoints
Facebook Breaks Another Record: Volume – WSJ
Facebook IPO Post-Mortem – The Atlantic
Facebook’s Debut Marred by Trading Flaws – NYTimes.com