There was much wailing and gnashing of teeth at the close on Friday over the perceived lack of performance in the Facebook IPO. The stock priced at $38, opened at $42.50 (after a few hiccups at the NASDORK), and closed at exactly $38 after an effort by the syndicate members akin to the Spartans at Thermopylae to keep it from dropping below the offering price. The retail rubes screamed bloody murder, with the NY Post running the headline pictured here claiming that Facebook soaked Main Street for $20 billion.
Where was the pop? Shouldn't Facebook have screamed up at least 50% on the open? Where was Johnny Lunchbucket's payoff for putting 2 and 2 together that Facebook is a popular social media site?
I'm here to tell you boys and girls that Facebook might have been the most perfectly priced IPO I've ever seen. Morgan Stanley did a masterful job pricing the largest IPO in history. And the IPO achieved everything an IPO is supposed to: it injected an ass-load of capital into the company, provided an exit for early investors at a stratospheric rate of return, and generated a shit-ton of fees for the underwriters. Nowhere in the rule book does it say anything about retail investors getting rich on the first day pop.
In fact, if you look at a deal that was patently mis-priced like LinkedIn, you'll see what I'm talking about. Morgan Stanley was behind that one, too, with the help of Bank of America. LinkedIn was priced at $45 a share and opened at $83, trading as high as $122.70 the first day. That is horrendous for both the company and the underwriters.
A mis-valuation of that scale cost LinkedIn more than $130 million - money the company could have used to survive and grow for several more years. Likewise it cost the underwriters roughly $10 million, so the $30 million in fees they split up could have been $40 million. Morgan Stanley was determined not to make that mistake again.
That Mark Zuckerberg is a genius cannot be disputed. What caught me off guard is how much business savvy this kid has, too (because the two often don't go hand-in-hand). He managed to sell a bunch of stock and get his early investors liquid at the absolute peak valuation of his company. Do you think he cares that the stock didn't pop 50%? If it had, he'd probably be calling for someone's head over at Morgan Stanley, because he's no dummy.
Will the investing public be a little more cautious and less enthusiastic about the next tech IPO? They would if they had any sense, but I haven't found that to be the case. The media hype machine will kick in and the lemmings will line up.
Incidentally, I see Facebook dropping a good 10-20% from here as soon as the underwriters cry uncle and quit backstopping it. That's even more evidence of perfect pricing. They got the absolute most the market would bear for the stock, which is what a good agent is supposed to do.
Like we used to say in the old days: The firm made money, the company made money, the clients...well, two outta three ain't bad.
Well-said Edmundo. The clients need only look at their own greed and exuberance as FB begins its swift descent into the red.
I would caution against exalting Zuckergerg though. I very much doubt that he was in the pricing specfics...hell he didnt even turn up to most of the roadshows. And not to be a hater but I dont really think the kid is that genius...he basically just developed a format that appealed the most to social network junkies. Given the nature of the service, convergence was bound to happen. Some of the ideas he's now floating to monetize the site eg charging folks for greater status update visibility is just batshit stupid.
The pressing question to me is why his wife looks so angry in the wedding photo, she has a look I marry billionaire scowl on her face.
Suckerberg isn't too good at thinking logically. Instagram for $1Billion dollar...no money making ability there. The worst mistake he has made in the past year is get F&!%ing married the day after his baby goes public and he makes 20billion,
Can Someone smack this ahole
Got to agree on this one. Perfect pricing and that is why I sold a truck load of those on Friday.
Still overpriced but good for them.
I was thinking this same thing...it shows that the bank did its job well. If it was up even 25% day 1, that would be proof that they left a lot of money on the table.
I don't know why investors would think IPOs are safe investments. The companies lack significant public track records, and are pricing the stock specifically to raise the most money possible.
What do you make of MS supporting the $38? I know it's not officially confirmed but analysts estimating this cost MS low single digit billions and if true probably wipes out advisory gains plus further expected loss as the trades unwind.
Looks like they're done backstopping the deal. The stock's at $35.
Holy shit, $34. Down 11% on the day. Look out below.
Uh-oh! 33.67!
I think this is even more pertinent when you take into account the voting right situation that zuck sorted for himself.
He didn't retain 56% of the voting stock because he likes to play team ball.
Wow, 33.10, this is fun to watch, so for you S&T guys is this "fun" or ulcer-inducing? Guess it depends on your position.
Every other tech co that was thinking of doing an IPO this year must be on suicide watch
33.66 -4.57 (-11.96%)
Sweet mother of....!!!!
Is it possible that MS overpriced the offering to compensate for lowballing linkedin? Zuckerberg is a smart guy and all, but I'm not sure he knows jack about pricing (see: instagram). If they'd gone with $30 a share I think it's fair to say he wouldn't have known the difference.
Actually, $38 a share was exactly what Zuckerberg valued Facebook at in the Instagram deal ($104 billion). Not sure if that's life imitating art, but that would be an enormous coincidence. Methinks Zuckerberg knew exactly how much he wanted for his little company.
And before anyone accuses me of being a fanboi, I'm just going by the valuation in the Instagram deal. Clearly the market today thinks the valuation should be lower than it did on Friday.
Zuckerberg's wedding special..
If MS is backstopping the hell out of this thing, doesn't that mean they'll own a huge stake and have a say in anything the company does?
Clearly they're not backstopping it any more. And they're not allowed to own a huge stake under the Volcker rule. Strictly market making. I'm betting it was them (and the rest of the syndicate) hitting the bid this morning.
As for his valuation of instgram, that is very interesting: I wonder how much of a say Mark had in the setting the final offering price. I wouldn't be surprised if he was more involved in the process despite the carefully crafted image of him not giving a shit.
It was. Had to be, why would they want this piece of shit? They know everything about it and squeezed the market for everything they could get. Well played, MS, and taking a little loss on the back end from the greenshoe is apparently not a big deal to them. Either way, from a financial standpoint this company sucks the sloppiest cock I've ever seen and Zuckerberg probably knows it. And I'm sure he'll end up killing that woman before he ever divorces her.
Damn Edmundo you sure got that right! lol down it goes.....
One thing is very clear: Zucker is very shrewd to the point of being severe.
The timing of the marriage and the IPO is not coincidental. Generally speaking, property acquired before marriage is not divided in a divorce.
It was trading for years in the Second Market.
Anyway its a garbage stock.
Facebook is gonna b like Kodak in 5 years
How so Kodak was a dominate PUBLIC company..I doubt Facebook will ever get to that.
Forgive my ignorance, but why do you contend that MS was very successful when it pretty much was forced to backstop the stock on Friday? Doesn't that mean that the stock may have been priced too high and that MS wanted to save face for public investors?
Think of MS backstopping the deal as a marketing expense. They could've brought it at $35, and probably would've had a nice pop. Instead, they more or less perfectly balanced supply and demand and brought it at the maximum the market would bear knowing full well that they'd probably have to step in and shore it up at the end of the day. If I'm right about MS and other syndicate partners being on the bid this morning, they took a small loss to realize a much larger gain on Friday. Don't forget that Goldman was co-underwriter, and they unloaded the majority of their holdings (over $1 billion) at $38 on Friday.
Can someone please explain how they gained?
Thought this would be a good thread to share this LA Times business article I was just reading.
http://www.latimes.com/business/technology/la-fi-tn-facebook-sued-15-bi…
This is my understanding of how the greenshoe works. If there is someone here that works on a cash equity desk or equity syndicate, and can provide more color, I'd love to hear it.
1) The bank sells 100% of the deal. This is matched against 100% of the shares sold from the primary / secondary holders, so the bank is net flat. 2) The bank sells an additional 15+% of the deal. The bank is net short 15+% of the shares, but up to 15%, they are covered from the greenshoe at the IPO price. 3) If the bank is forced to support the shares in the open market, the ones they buy will net against the 15+% they gave out in allocations. So in the case of FB, a lot of the support was made at $38, which nets out flat, but today they also were hitting bids at $34, $35, etc so they will actually be making money on those.
4) To the extent that their net short position is satisfied by their open market purchases, the bank does not have to purchase the greenshoe shares. They have the right, not the obligation, to help themselves to those shares to the extent they need them.
Best priced IPO since GM. Well played MS
interesting stuff guys. I saw a quote from that Wedbush analyst covering the stock who said they should have brought it public for half the price and it would have surged to 45+ by now, and that MS messed up. However, from MS's and fbook investors' perspective you're right - killed itttt.
I disagree, 'Bush is a little hairy on the bottomline if you ask me.
Here's a great explanation:
http://blogs.reuters.com/felix-salmon/2012/05/21/morgan-stanleys-2-4-bi…
That article pretty well explains the greenshoe. What I took from it is, pretty much the underwriters (MS) oversell their allotment of shares at the opening price ($38) essentially naked shorting and creating phantom shares. What this allows for, is if the share price drops down to $38, they can buy back these shares and simultaneously support the price from going lower while not losing money themselves cuz they're merely buying back oversold shares. If they decide to support the price at a level slightly below $38, they even make money. The problem, and risk, here lies in if the share price takes off. Then I believe they would still have to buy back the shares at some point to prevent phantom shares floating around. (Un)Fortunately for MS, they bought back all their oversold shares at $38 (breaking even) and bought even more (for a loss) all in an unsuccessful attempt to maintain the IPO price
Edit: scratch that, I feel like the article didnt cover this point too well, but if the price rises the underwriters would exercise the greenshoe option which allows them to go back to FB, buy the oversold shares at the IPO price and they would then send them on to whoever bought them...until the underwriter either exercises the greenshoe or buys back the shares, however, they are phantom...im probably still wrong, fuck it
The only people who have the right to be pissed are those who didn't take their exit via IPO...
@GoldmanBallSachs No, you have it exactly right. If the IPO ripped up (which is what is supposed to happen normally), Facebook would have been required to sell the full shoe to MS at the IPO price of $38. Since it didn't, MS had the option to get the stock from FB at $38, or to buy the stock on the open market at $38 or less (which is obviously the option they chose). MS banks a 15% increase in underwriting fees with zero risk, and also manages to backstop the deal at zero cost and look like a hero (on Friday at least). Plus they probably carried their short into this week and are covering at a nice profit. It's good to be king.
I get what you're saying eddie, and it's ipo financing 101...except i thought ipo's were all intentionally underpriced? i know it's all still heavily debated...but i can tell you that i never heard those that sold linkedin complain like those who bought fb.
http://dealbook.nytimes.com/2011/05/27/why-i-p-o-s-get-underpriced/
No, that's very true and we always juiced our deals (sometimes just to make sure the stock got paid for, lol). It's unusual to say the least. But the stock opened up 10% ($42.50) and stayed above $40 most of the day. Any more than that and I think MS would've had some 'splaining to do to Marky Mark.
And make no mistake: that is the balance of power in this particular relationship.
This is why I compared it to the GM IPO. What do you think the gov't would have done if GM had screamed higher?
From the sounds of it, FB ran the FB IPO, not MS. I remember reading about how their CFO drafted the prospectus and basically manhandled MS, JPM, GS and the rest into lowering underwriting fees and a mess of other concessions.
FB was the biggest winner in the IPO they ran: liquid, no money on the table, Marky-boy gets to retain full control and cash out some of his oldest, largest investors and replace them with fragmented, weak open market-types. MS made less money than usual, and more importantly, has to deal with the legal and reputational fallout from this little shitshow down the road - FB doesnt care, they wont IPO'ing again, but you can bet the next social media offering wouldnt be nearly as easy to sell. That price revision and additional shares offered in the last week? I bet that came from FB, not MS. It's like real estate agents listing other people's homes compared to their own; the upside for MS for successfully selling a bit more shares at a couple dollars higher is tiny compared to the risk of something going awry; the marginal return is too small for MS to care, unless they were pushed into it by the owners. And of course retail investors got screwed.... but I mean, there has to be dumb money to make a quick buck in finance...
Makes you wonder about herd mentality in IB. Everybody wanted a slice of FB's IPO for the bragging rights, and FB knew it, and they played their hand beautifully.
Shame their future's now dependent on us clicking a pop-up ad next time we're on facebook....
IPO share price calc (Originally Posted: 11/08/2009)
How is an IPO share price (initial offering) calculated?
Is it Fully Distributed EV/shares issued or post-money EV/ shares issued, or something completely different?
usually the shares issued will be like 10%-20% of the company, not the entire company
from what god told me a range is set by some common multiples looking at comps (EV/ebitda, EV/Rev)to value the entire company/equity, and then for example if 10% of company is offered theyll value it based on that pre money valuation
this is just the initial range for a prospectus, ultimately demand from investors will set whether it prices above or below the range.
god bless
The share price range of an IPO is actually set to be whatever the banks/company want it to be. Most IPOs are done near $20/share because that's thought to be normal for investors to see. To get to the range you do a stock split right before the offering. If your company has positive earnings, you will usually look at PE multiples of good comps (companies in the industry and also related IPOs that have been done) to value your post-money equity. If the company doesn't have earnings you'll look to EBITDA or something else.
IPO Pricing (Originally Posted: 11/28/2007)
Where would I find data on what price IPOS's were priced at
http://www.ipohome.com/default.asp
About the IPO price, help! (Originally Posted: 11/16/2008)
How do IB find the IPO price ?
GA's IPO price is 15.5bucks at 2007, and the earning of it is only 0.122RMB, how could that be? then the P/E is 99? too high?
thanks, my dears
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