First the company was supposed to come public at $28; then they upped the price range to $34-38. That wasn’t enough for the insiders and greedy underwriters, who collected bountiful fees (1.1%) based on the size of the deal, so they sweetened the pot. Said pot wasn’t sweetened for the unknowing public, who listened to sweet melodies of Facebook’s web dominance by the propaganda outfit known to you as CNBC. The pot was saccharined for the direct benefit of selling insiders, who put an additional 25% more shares on the market, to be dumped at the ipo price of $38– valuing the company at $104 billion. Just a few weeks prior, the company was allegedly worth just $96 billion, according to lead underwriter Morgan Stanley.
What’s $8 billion between friends, no?
The sophists on the television paraded well known venture capitalists and stupid pundits onto the tube, who praised Facebook as the next Google. They only had pleasantries for Facebook, things to do with the social media giants 900 million userbase and how they haven’t even scratched the surface in a seemingly endless pool of online advertising dollars waiting to be had.
Facebook was the answer to the Greek crisis, market malaise, promised by all to usher in an new era of American excellence.
The “generosity” of the lead underwriter, Morgan Stanley, and the selling Facebook employees/venture capitalists, continued until the very night prior to going public. The $18.4 billion raised by the ipo would have record retail participation.
What does that mean?
That meant Joe Schmoe with $50k at E-trade was allocated shares. That meant the ipo was not exclusive to institutional clients, for some odd reason. Maybe they just wanted to help the little guy out?
Lo and behold, upwards of 25% of the Facebook ipo was allocated to the unwashed, brainwashed and sedated public, who believed every word of sweet hominy molasses spoken by the journalists at CNBC. The stock opened at $45 and was quickly “sold to you” by institutions. Every brokerage firm I know, who was given 1 million shares or more, sold every single share at or near the opening tick.
The stock plummeted within minutes, causing a ripple effect in the market, sending the shares of fellow social media stocks lower, in horrific, pinless hand grenade fashion. Investment company SVVC traded below cash, swooning more than 27% in a single session–all because they owned 600,000 shares of FB at $31.
The syndicate then scrambled to save face. They feverishly bid for the stock with millions of shares, also having to deal with unprecedented software glitches at Nasdaq, which caused trades to go unreported for hours–putting traders in the dark. If Facebook’s ipo price fell below $38 on its first day of trading, they would have been exposed for thrusting a great crime upon the America people, through the outrageous pricing of a hyper-marketed ipo onto an unsophisticated investor.
At $104 billion, Facebook traded more than 25x sales. In comparison, social networking company YELP, who is often ridiculed for being overvalued, trades at about 12x.
The rest is history. Today, the market opened and the syndicate could not control the purblind mobs of angry and beguiled retail investors, who were hitting the bid in an effort to salvage their investment, burned badly by the fucking investment banks–yet again. Within 15 minutes of trading this morning, Facebook was down $5 or 13%, staggering an already injured retail client base and lighting fire to an already scorched social media space.
In all of my years on Wall Street, I’ve seen plenty of bad deals. Usually at boutique deal shops, ipo’s would trade flat its first day and sustain that level for weeks, if not months, afterward, before dropping. Most honest brokers avoid those deals because there is no incentive to put client money into an ipo that will likely trade flat, unless of course said broker is only interested in a concession. But this Facebook ipo steals the cake. This deal was worse than any bucket shop deal I’ve ever seen. What makes it exponentially worse is the size of the scam and the money it literally stole from retail investors.
If this deal was priced at $28, with the original amount of shares, everyone would have made money. Retail would have been happy. The market would have gone higher and the social media sector would not have been ravaged to drill bits. Instead, we got more of the same from Wall Street: greedy fuckheads who pushed the envelop and LOST (again), not only tarnishing their reputation in the process, but damaging the repute of America worldwide–viewed as a bunch of fucking gunslinging piggish idiots who cant’t even celebrate the public offering of their most popular, lauded and successful American company with a fair deal.
One day those fuckers will get what they deserve. We all do.
NOTE: Insult to injury- Morgan is likely short 63 million shares of FB at $38.