Facebook IPO post mortem

Now that we are three business days into the Facebook IPO, there are more problems than anyone could have forseen. Facebook, Morgan Stanley, and Nasdaq have all had major issues during the IPO process and are now being scrutinized in the media as well as the political scene. Let us look at the biggest problems.

Morgan Stanley
Monday afternoon news came out that the MS research department amended earnings estimates for Facebook and that the information was disseminated only to institutional clients, leaving the retail investors in the dark during the road show prior to the IPO. Although this is not currently a legal violation, it is certainly an ethical one. Any update to an outlook on an entity by a banking institution should be disseminated to all clients simultaneously so that everyone has an opportunity to process the information and trade accordingly.

Yesterday the Secretary of the Commonwealth of Massachusetts has issued a subpoena to Morgan Stanley to question them on discussions with investors during the road show. Morgan Stanley has also issued a statement that it disseminated all information properly and that there was no inappropriate behavior. We will have to see how this unfolds. Unfortunately the damage has already been done. The main problem is that the retail investors who have been slowly starting to trust the markets since the alphabet soup collapse have once again been screwed over (or at least are feeling like they have been screwed over) by how wall street seemingly operates. There has been a lot of talk by various commentators and writers that the Facebook IPO was supposed to strengthen the relationship between wall street and the average investor, unfortunately it would appear as quite the opposite took place.

NASDAQ
One of the main issues that the government had with Wall Street during the downfall of 2007 was transparency . On the day of the FB IPO there was anything but transparency. There were major problems at NASDAQ to match orders, send out confirmations of filled orders, and have traders amend and cancel orders. Confirmations of fills were several hours late and in some cases orders were not confirmed until Monday morning.

To clarify what this means; Joe trader sitting at his house wants to buy 5k shares of Facebook @40 around 1pm on Friday. He submits his order on his personal brokerage account (lets use Scottrade as an example), Scottrade receives the order, combines it with orders from other clients and sends it to a large broker equity trading desk to fill, the broker would then place the order on the NASDAQ. Since orders were not able to be matched there was no confirmation, so Joe trader has no clue whether his bill is going to be 200,000 or not going into the weekend. When everything is cleared up, Joe gets a confirmation on Monday that he received execution of 44 and now the stock is trading at 38. Hence he is out 5,000 dollars.

Facebook
Facebook has not yet come under too much scrutiny, especially in comparison to MS & NASDAQ. The way I look at it, this whole mess was very representative with how Zuckerberg handles himself, with the whole hoodie thing and not wanting to be part of the roadshow and other immature actions by the FB CEO it almost felt that there were things that were not going to go right. Facebook is however incredibly displeased with NASDAQ for their negligence in handling the IPO and reports have come out today saying that FB may be in talks with NYSE for a possible listing opportunity.

Earlier today a lawsuit has been filed against the underwriting team with regards to the dissemination of the late downgrade as well as a lawsuit against NASDAQ for dropping the ball on the IPO execution. All in all this story is going to be played out over a long period of time and is not going away any time soon. Unfortunately these events have further undermined the appearance and reputation of our beloved industry, something that none of us necessarily need.

 

This is SOP on an IPO. Analysts are prohibited from publishing research, but end walking clients through their forward looking models all the time.

Also, no one appears to connect the dots that "big institutional investors" = "retail investors retirement money". Everyone should be rooting for them to have as much info as possible before they make an investment.

 
Best Response
EfferCore:
This is SOP on an IPO. Analysts are prohibited from publishing research, but end walking clients through their forward looking models all the time.

Also, no one appears to connect the dots that "big institutional investors" = "retail investors retirement money". Everyone should be rooting for them to have as much info as possible before they make an investment.

You make a very valid point. However, what I was saying is how everything is portrayed through the eyes of the media. The retirement plans are handled by professionals at the institutional level which are not being interviewed by BBG, WSJ, CNBC, etc..and the underlying client usually does not even know that his pension is participating in the IPO. But the person who day trades for a living is who the media is looking at and from their perspective what MS did is unacceptable.

It is interesting though that through all of the interviews that I have watched regarding this topic over the last 4 days, not a single time was it mentioned that institutional investors represent average folks. Instead they are painted as insiders etc...

 

Facebook was really overhyped and overvalued and Mark Zuckerberg really pisses me off. I hate seeing him walk around in his faggy hoodie running a multi-billion dollar social media empire with a relaxed, not a care in the world attitude. I think it's time this guy bought a suit and became a little more serious especially now that the company is public and everything he does can affect how the stock will perform.

Rules are for the obedience of fools and the guidance of wise men.
 
CornerOffice21:
Facebook was really overhyped and overvalued and Mark Zuckerberg really pisses me off. I hate seeing him walk around in his faggy hoodie running a multi-billion dollar social media empire with a relaxed, not a care in the world attitude. I think it's time this guy bought a suit and became a little more serious especially now that the company is public and everything he does can affect how the stock will perform.

Agreed, to an extent. If you look at someone like Steve Jobs you see a man who could give less than a rats ass what the markets thought of him. However, he was a man with a vision AND, as is key, a way to monetize that vision. Because of Jobs Apple was able to achieve 50% margins and become the most valuable brand/company in the world. Zuckerberg, while doing a lot of things right, is not necessarily adding value per say. Facebook relies a lot on network effects rather than providing a good platform.

If Facebook can find a way to effectively monetize as Google has done, then they could be the most valuable company in the world. However, I really don't think Zuckerberg has the silver bullet that is needed. Myspace, while failing, is fundamentally the same thing that Facebook is. Facebook still relies on the old status updates, posting pictures, sharing information, and selling adds that they have done for years. Twitter, WIkipedia, and a lot of massive sites are falling into this problem. They are basically providing a fundamentally incredibly valuable service that is, in essence, not profitable. They haven't fundamentally changed the game. If they can do that, the sky really is the limit. Perform and you can walk around in your hoodie and flip flops all you want. Until then, Zuck better up his game.

 

remember: Mark Zuckerberg doesn't give a fuck about making money (reason number #349 the stock was overvalued). Right before the opening bell he said something along the lines of "our goal was never to become a public company, our goal is to make the world more open and connected". It was never about the money for this guy, and even if it was, he's so rich now that it doesn't matter.

 

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