Ouch! Facebook slumps below IPO value on day 2 Facebook's stock tumbled below its initial public offering valuation to $37.46 per share in pre-trading figures on Wall Street this morning. Although technical problems at Nasdaq delayed the IPO, Mark Zuckerberg's web firm eventually floated last Friday, valued at $104bn with an opening price of $38. The dominant social …
There was a mad dash by people hoping to buy up shares purely to quickly re-sell and make a killing. Basically the ticket touts of the financial world. This has pushed the price of Facebook up to levels that are just not sustainable.
It looks like many of the initial investors will lose out; I could chuckle at their distress, (OK, maybe I will) but I also worry that this will result in the media declaring another "dot com bubble" and predicting anotehr crash. This could then become a self fulfilling prophecy as others over react.
The problem is that we all have pensions, savings etc. that are affected by the twerps who make these poor decisions.
Everyone knew that the IPO would be skewed by FaceBitches wanting to buy a bit of history. These people buy based on emotion and wanting to score Likes for telling their friends about the purchase.
Then there were a bunch of speculators hoping to cash in on the irrational actions of FaceBitches.
What now? Likely the emotions will dissipate. People will find a wierd looking bit of paper in their hands and start wondering what it might really be worth. That is likely going to take them south.
Vass ist dies "bitter" of vitch You speak? Schadenfreude ist an Emotionalstate, and Ich understand das dies "bitter" ist another Emotionalstate, aber zat goes not zogether. Nicht two Emotionalstates at ze zame Time, das ist against ze Rules. Ordnung muss sein, und two Emotionalstates gemixed ist not Ordnung. Also, Schadenfreude it is.
"Pensions and funds are not normally looking for high risk "
True - but they often buy shares in those institutions suchs as investment banks, funds etc that DO buy the more high risk stuff. The whole financial market is still very incestuous, with all of the various institutions buying little chunks of each other. This is why things got so sticky a few years ago; and they haven't learned anything from the problems that they had then.
Yes, they're nothing like those fools who invested other people's money in sub-prime mortgage derivatives... anyway everyone knows that lightning doesn't strike twice...
Fact is that many pension funds are based on a calculation of 8 % returns from bonds, cash and equities. With "safe" US or German bonds paying less than 2 % this means piling into equities and derivatives in search of returns.
This is all going to end in tears. Our tears.
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"The real story here is the % the banks bought. Apparently 86% were bought by 5 key banks."
Oh please, no. PLEASE tell me this isn't true. The banks, whose business is managing money and who have whole departments dedicated to analysing the stock markets... the can't not have seen coming what most of us all predicted.... Can they?
As I understand it (I welcome correction by the knowledgeable), the underwriters (not 5 random banks) had a large fund that they used to prop up the price by buying at $38, and the amount of that fund they used was subtracted from the amount they owed FB. It seems to me they were just 'buying' from themselves and other insiders, and every share accounted that way was a share that wasn't flogged onto a retail rube at inflated price, so okay by me.
What did people think would happen?
It was always a overinflated IPO. The alarm bells should have gone off on all the silly press releases in the run up, trying to convince people Facebook had long-term legs and Google was dead in the water.
Really people's stupidity stuns me sometimes. have they not heard of the dot com bubble?
Maybe they were greedy - they kept upping the IPO price right up to the launch and surprise, surprise people are finding it a bit too rich and the shares were bought by the underwriters instead.
Makes Apple shares look positively cheap. Facebook have about a billion users and still make very little money (relatively) - Apple only have about 10% of the PC and phone market - so plenty of room to grow. FB are trading on a massive multiple of profits compared to Apple.
No Schadenfreude here just relief that reality caught up with this bubble even faster than I thought: the valuation came out of thin air...
Then again it was so massively over-valued that it can never really collapse below "stupidly high numbers" so there's something to be said for these attention grabbing, fictitious values.
Back of an envelope calculation:
With a 15 billion class action on them and P/E about 5 times historical highs: IPO at around 100 billion. Divide by 5 and subtract 15 billion. Would put the total company at around 5 billion and shares at around $ 2.
That said, the data they have managed to amass should allow profits to grow significantly, assuming they know how and are legally allowed to monetise it. Facebook is a sort of credit check agency for people. Amazon has been successful despite being an utter failure for early investors.
Of course it's a guess - there are many brokers and agents and the software and configuration all vary - knowing how these things all work would make someone very rich !
a $30 threshold seems logical from a psychological point of view, like £1.99 pricing.
Has anyone worked out what the shares are worth looking at the key financial metrics - whatever they are (e.g. ROCE and the like) in comparison to say Google and say Salesforce ?
$30 is meaningless as is $31 or $29 just because FB and their bankers decided they could increase it and increase it to $38 does not mean at $30 they represent good value or a buying opportunity.
They made something like $1bn - on a more normal valuation like Apple or Microsoft that would value FB at perhaps 14-20bn - so maybe they are 5x over-valued?
If (theoretically) someone asked you if I would rather have $10k of Apple or $10k of FB what would your answer be (neither is not a valid answer).
"If (theoretically) someone asked you if I would rather have $10k of Apple or $10k of FB what would your answer be (neither is not a valid answer)."
The Apple shares. They are more likely to have the same value or better than the FB shares by the time I organize selling them. With Apple I would be sitting here thinking 'I'm going to sell those and buy something nice'. With FB shares I would be sitting here hurriedly clicking through web pages trying to offload them whilst they were still work $10K.
Do I think <$30 by the end of the week? No - too many wealthy groups will keep propping the price up. Do I think <$30 by the end of the next week? Yes. They will only keep them propped up for as long as they need to to get out of there.
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Off his valuation for the whole company - only on 'paper' - he's still probably making more in a day than most people make in a lifetime.
To put into perspective let's do the maths let's say you earn an average of 40k per year for a 50 year working life - that's 2m. Multiply that by 1000 and that's what he lost in a single day - if that's what he lost imagine what he's still worth.
It wouldn't surprise me in the least if the FB share price eventually crashes to below 1% of its current value, when the people who bought into this scheme realise that the site can't actually make them any money. Cue a mad panic bailout.
The trouble is, the amount of cash involved is so huge that it's bound to have negative repercussions on the global economy.
In the meantime, Zuckerberg, who got really lucky in the first place, is laughing all the way to the bank. Your dwindling pension will be propping up his lifestyle if the shares take a nosedive. Which is nice.
"There's a reason you're doing a £22k network admin job instead of working as a £220k trader."
Are you suggesting that traders on £220k per year are more capable of spotting impending crashes than other observers? I can't help but notice that these "special" people keep on guessing wrong
I'm not sold on the idea that the company should be valued more highly than McDonalds or Coca-Cola. I think their float may be higher than HPs (or at least it might have been before the drop)
I'm staying away from FB shares until the employee lockout date ends, to see if more shares pour onto the market then, driving prices down further.
And on a personal level I think FB is overly snooping and likes to arbitrage privacy in essence, but I think that concerns about that do not affect their business to teh point that it is not already embedded in their pricing.
1, Create a site that hundreds of people visit (compulsively) every day.
2, Get some of the biggest, most profitable, web based firms to try and copy you.
3, Float your site on the stock market before anyone realises there is no real way to turn popularity into profit.
4, Sit back and chuckle at the big organisations who still don't understand the net.
The banks are in this for the long haul.
I wouldn't be surprized to see the stock continue it's downward trend until all the weak holders are shaken out. The stock hits $25. They quietly start buying it back to $38, Then come the rumors. The misleading stories about new and better technology and the phony revenue and profit figures. The banks buy the stock all the way up to $55. They sell it back down to $44 and with those profits buy it back up to $70. Then the most outrageous rumor of all. The stock spikes up and goes back down to $40. (Of course this works better when the whole market is bubbling and the economy is strong.)
How many times have I seen that trick! I was even in on one in the first dotcom. Got in at $2. Got out in the mid $20s. Watched it go to into the 50's. A worthless company that made Facebook look like IBM.
What escapes me: why people try to make money investing and hoping for a bullish trend?
Bearish and shorting is just (if not more) profitable.
I, myself, did not expect the company to drop that quick (more money pumped by the banks) yet expecting an overvalued company to rise even higher or getting dividend is ludicrous .
>>What escapes me: why people try to make money investing and hoping for a bullish trend?
Some of it is just fake "bull" which gives an impression, but in reality, companies with no intrinsic value (like FB) are just a vehicle to make cash by those who knew what was going to happen, my $25k reverse spread turned into $27.5k in 45 mins, then another bet to $31k in 40 mins and then $36k 20 mins after opening Monday, $10k for a couple of hours work (probably a week prep), a few people with millions to play with make millions (from millions with a few $ to play with, my $25k could now have been worth $17k instead of $36k if I got it wrong, and believe me I've been very wrong in the past).
"In the U.S., in order to sell stocks short, the seller must arrange for a broker-dealer to confirm that it is able to make delivery of the shorted securities. This is referred to as a "locate.” Brokers have a variety of means to borrow stocks in order to facilitate locates and make good delivery of the shorted security."
"The vast majority of stocks borrowed by U.S. brokers come from loans made by the leading custody banks and fund management companies."
Ask yourself why would one of the bank/underwriters loan you the stocks for you to sell it (short)?" Especially if they're also selling the stock to drive the price down and buy it back at the lower price. And perhaps profiting from the sale because of the lower price that they paid for FaceBook stock as underwriter.
@Richard Jukes. This was the 'market condition' that would not let you short the stock. No broker would loan your broker the stock to short.
BTW "Underwriters are paid commissions, securities, or through a combination of fees and securities. In a firm commitment the price underwriters pay the company for the securities is expected to be less than the price offered to the public. This "underwriter's spread" compensates the underwriter for conducting the offering. The spread averages 10 percent or less and is dependent on the anticipated complexity and size of the offering. The maximum spread allowed by the National Association of Securities Dealers (NASD) is 10 percent."
@stanimir. I assume you know this. If you by a stock for $25, all you can lose is $25. If you short a stock at $25 you can lose gazillions. The stock can go to $50, $100, $200 and eventually you'll have to cover.
:-)
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