In many ways, the Facebook IPO can be
looked at as the perfect storm of how not to launch a public company. Leading
up to the stock sale, media outlets were breathlessly hyping how much money
founder Mark Zuckerberg and his team would be making. Nearly every news program
was offering tips on how the small investor would have to wait in line to buy
their handful of shares and be a part of this “history-changing IPO.”
Then reality hit and Facebook fizzled. What
went wrong?
Right out of the gate there were problems.
The U.S. stock market rings its opening bell at 9:30 a.m. The IPOs usually
start trading about an hour later. However, Nasdaq informed everyone that
Facebook trading wouldn’t start until 11:00 a.m. It actually didn’t start until
11:30.
In that first wave, close to 80 million
shares were being bought and sold in a matter of seconds. And in that same
blink of an eye, traders were complaining that their orders weren’t being
properly processed. In some cases, they were getting shares at a higher price.
The NASDAQ would blame all of those errors
on a technical glitch but it left a bitter taste for most traders. But even all
that sloppiness isn’t why some newly-minted Facebook shareholders are suing the
social media giant. They claim the fix was in.
As reported by Reuters, the lead
underwriter for the IPO, Morgan Stanley, was provided with some pertinent
information regarding the true nature of Facebook’s financials. Namely, they
weren’t so hot. Coming upon the heels of GM backing out of a $10 million
Facebook advertising campaign, this report apparently let the big players in on
a dirty little secret - when it comes to generating dividends base on profits
Facebook might just turn out the be the Emperor with no clothes. Suddenly that $100
billion valuation wasn’t looking so accurate.
Reuters went on to report that a few hours
after Morgan Stanley got the news it was apparently shared with Goldman Sachs,
JP Morgan and Bank of America. They all reduced their earnings outlook. When
those numbers were publicized, the stock price took a hit and kept on sinking.
The disgruntled shareholders claim this was a classic case of insider trading
and they were the ones left holding onto a stock that dropped like a brick.
Naturally, the big brokers claim they are
innocent of any wrongdoing. Are they right? At what point does it become
insider trading?
Were
the people jumping on the Facebook bandwagon misinformed intentionally or did
they merely buy into the hype only to be smacked by reality? Obviously, this
will be an issue addressed by the courts. Meanwhile, the stock is still
trading. Zuckerberg still became a billionaire (on paper), got married and went
on a honeymoon.
And Facebook still has millions and
millions of users. In the grand scheme of things, not much has really changed
for those users.
Everyone is just waiting for the next move.
