Knocked off Bloomberg’s top-40 list.
Hopefully his new bride didn’t marry him for the money. Mark Zuckerberg was knocked off the Bloomberg Billionaires Index, which ranks the top 40 billionaires in the world. When Facebook went public on May 18 and its share price fell nearly 10 percent in 10 days, the social network’s founder’s value dropped on paper from $16.2 billion to $14.7 billion. Zuckerberg’s wealth is now $800 million below the last person on the list, Colombian banker Luis Carlos Sarmiento. Zuckerberg, who has been away on his honeymoon after his surprise wedding to longtime girlfriend Priscilla Chan, has not commented publicly about the stock’s debut.
Its shares keep plummeting, falling to just over half the high reached on the day of the IPO. For every other overhyped and overvalued company in Silicon Valley, this is bad news.
Facebook shares continue to plunge from their IPO price. They’ve now hit $27, which represents only 60 percent of the $45 high mark they briefly struck on the first day of trading, two weeks ago. Facebook’s market value now stands at $58 billion, which is barely more than the valuation that Goldman Sachs and other investors paid in a private round in January 2011—and is actually less than what a lot of private investors were paying for Facebook shares in the secondary market in the months leading up to the IPO.
Pedestrians are reflected in a window near a display of the share price for Facebook Inc., displayed at the Nasdaq MarketSite in New York, on Tuesday, May 29, 2012. (Scott Eells / Bloomberg / Getty Images)
In other words, the victims of Facebook’s disastrous IPO were not only the “mom and pop” retail investors who foolishly piled into the stock on the day it opened. They’re also the supposedly “sophisticated” investors who bought shares on private exchanges like Second Market over the past year.
Those sophisticated pros include GSV Capital, a publicly traded investment company that bought a bunch of shares at a $70 billion valuation in June 2011, when the move was seen as such a coup that GSV’s own stock price went up as a result.
By January of this year, private market investors were buying shares at a valuation of about $100 billion.
Whoever bought at that price has now lost almost half of their money.
Worse, this stock seems capable of going lower. Henry Blodget, a former Wall Street analyst turned tech blogger, estimates that a fair price for Facebook stock is somewhere between $16 and $24 per share.
But even that could be overly optimistic. The scary thing is, if Facebook shares carried the same price-earnings ratio that Apple and Google carry, the stock would trade in the single digits.
Twitterati spot the newlyweds.
Mark Zuckerberg and Priscilla Chan, social media is watching you. The Facebook power couple was photographed by Twitter user Darek Rusajaczyk at the Sistine Chapel. Several Tweeters mentioned running into Zuck and his wife at the Colosseum and the restaurant Pierluigi. It’s unclear whether any Facebook users posted about running into the pair.
Morgan Stanley banker scapegoated for flop.
Investment banking can be a real boys’ club—until one of the boys makes a dud call. That may be the case with 45-year-old Morgan Stanley banker Michael Grimes, who’s catching a lot of flak for Facebook’s fraught initial public offering. Morgan Stanley was lead underwriter on the deal, and with the social network’s share now tumbling to 16 percent below its IPO price, the relationship that developed between Grimes and Facebook’s chief financial officer, David Ebersman, is getting a second look. Grimes reportedly encouraged Ebersman to jack Facebook’s share price to $38 as well as to make more shares available in the initial offering. Analysts have said that underwriters on the Facebook deal allowed themselves to get carried away by hype.
For four market makers backing IPO.
It’s been a rough week for Facebook. Its stock price has tumbled. Lawsuits have been filed. And now it looks like four of the top market makers for the initial public offering—Knight Capital, Citadel Securites, UBS, and Citi’s Automated Trading Desk—are going to collectively lose more than $100 million on the deal. The culprit was a technical glitch that delayed Facebook’s market debut by about 30 minutes, forcing thousands of orders from clients to be delayed. The Securities and Exchange Commission, along with the Financial Industry Regulatory Authority, is scrutinizing whether the IPO was handled properly.
All the actors in the Facebook IPO debacle look bad, Zachary Karabell writes, but most of the blame should be directed at Morgan Stanley and the other banks that underwrote the stock offering.
The saga of Facebook’s Wall Street debut continues. The latest twists are a series of investor lawsuits against the company’s underwriters—the investment banks who managed the process of issuing Facebook shares to the public market. The lead underwriter, Morgan Stanley, along with a familiar cast of others including Goldman Sachs and JPMorgan Chase, are accused of lowering both revenue and earnings forecasts for Facebook during the weeks leading up to the public debut without adequately emphasizing those facts when selling the shares.
Mark Lennihan / AP Photos
At the same time, The Wall Street Journal has reported that Morgan Stanley and others have actually made in excess of $100 million since Friday when Facebook shares debuted and then plunged early this week. That $100 million is in addition to nearly $200 million in fees that the banks will collect, and comes from a typical part of the IPO process whereby the underwriters get to sell additional shares at the offering price and then buy them back if the stock goes lower, essentially shorting the stock and reaping the gains as part of their responsibility to attempt to maintain the price of the shares at something close to the offering price.
In terms of public relations, Facebook’s public debut has been a debacle. Every single actor in this particular drama is looking bad–the banks, the Nasdaq exchange that was overwhelmed by orders, and Facebook itself, including CEO Mark Zuckerberg, for his allegedly cavalier attitude about the price of the company and CFO David Ebersman for giving the green light in the days before the offering to up the number of shares and their price, thereby inflating the value of the company and possibly depressing demand for the shares once they started trading.
But public relations and media spin do not define reality—evidence to the contrary notwithstanding. Facebook has done many things right; going public it botched. John F. Kennedy famously said after the Bay of Pigs that victory has a thousand fathers but defeat is an orphan. Not in the case of Facebook’s public offering. There is blame to share, and it is now being duly apportioned. But selling shares and then seeing them sink on Wall Street is not the extent of Facebook’s business. Its business is connecting people, either for work or more often for play and diversion, but that is what it does. Whether it can generate consistent revenue based on advertising or yet-to-be-determined fees is still to be determined.
Selling shares is, however, one of the primary businesses of Wall Street investment firms, and if there was any doubt that these firms are overreaching and underperforming, the high-profile Facebook flub should lay them to rest. Morgan Stanley along with the rest of the syndicate badly misjudged demand, assumed that there would be a typical “New-Economy” surge in shares on the first day of trading, overpriced the deal by as much as 25 percent above what most thought was a reasonable opening price even a few weeks ago, and then issued even more shares. All of that was supported by Facebook’s senior management and thus by Zuckerberg. But Facebook’s management isn’t in the business of selling shares, and while Zuckerberg or his CFO could have overruled Morgan, the Wall Street syndicate was responsible for handling the offering and its failures fall squarely on their shoulders.
There are certainly those saying that the bungled offering shows that Facebook itself is a house of cards, a sign of a new New Economy bubble that has seen a variety of high-priced IPOs of popular but revenue-challenged companies go public at high valuation: Zynga, Pandora, and so on. But that is at the very least premature. Stock performance is not necessarily–or these days even usually—an indicator of corporate health or management acumen. Facebook’s shares sank below an offering price that was way too aggressive and is settling at about where it should have been before the process entered the maelstrom of Wall Street.
At every turn in the past four years, the financial industry has shown a stunning inability to adjust to a lower level of profit, higher levels of global risk, and a future where returns are likely to be modest. That problem is most acute in the high-profile finance titans, the investment banks that managed the Facebook deal. Between the mid-1980s and the mid-2000s, these firms accrued enormous profit and generated massive compensation packages. Since 2008 the story has been exactly reversed, except that compensation remains far more elevated than long-term profit would justify.
Facebook and its bankers are accused of secretly disclosing negative information to some investors. But according to a legal expert, no laws were broken, writes Dan Lyons.
Facebook and its bankers are engulfed in complaints related to the initial public offering of the company’s stock. The IPO has been a disaster, with Facebook shares almost immediately collapsing below their original $38 offering price. (At the closing bell today, they were trading at $32.)
The mess got worse on Tuesday, when Reuters reported that analysts for Facebook’s underwriter banks apparently lowered their future-revenue estimates for Facebook, and told some investors—but not all. So as the smart money was warned off the offering, the dumb money was rushing into the deal.
That would seem bad enough, but some reports say that even as Facebook apparently was guiding down future-revenue estimates, the company and its underwriters were raising the price of the offering and adding extra shares. In fact, a bunch of inside investors (who may or may not have been privy to the negative forecast) decided to increase the number of shares they were willing to sell.
Regulators are investigating, and investors are filing lawsuits. But guess what? Even if Facebook and its bankers did everything they’re accused of doing, it’s likely that they didn’t break any laws, says Adam Pritchard, a professor of securities law at University of Michigan Law School and a former SEC attorney. “In terms of legal consequences, I would not see anything that would suggest they are vulnerable,” Pritchard says.
Here are some points to consider from Pritchard:
1. There’s a law called Regulation Fair Disclosure that requires public companies to disclose information to all investors at the same time. But there’s a catch: the law applies to public companies, Pritchard points out, and this stuff all happened before Facebook went public.
2. It’s true that a company preparing for an IPO is not supposed to give out information that differs from what’s in its official prospectus. But here again, there’s a catch: oral communications don’t count, Pritchard says. So as long as Facebook and its bankers shared bad news over the phone or in person, rather than via email and in writing, they’re off the hook. “If you reduce the information to writing, then that’s considered a prospectus, and prospectuses are tightly regulated during the waiting period before an IPO,” he says. “But oral offers are not prospectuses. So you have a lot more latitude with what you can say.”
From inside the Nasdaq MarketSite in New York's Times Square (Richard Drew / AP Photo)
Accused of hiding bad growth forecasts ahead of IPO.
Facebook shareholders filed a lawsuit on Wednesday against Facebook, its chief executive Mark Zuckerberg, and several banks led by Morgan Stanley for hiding weakened growth forecasts for the social network ahead of its initial public offering. The suit alleges that the company and the banks tried conceal that there was a “severe and pronounced reduction” in Facebook’s revenue-growth forecasts just ahead of the social network going public. The suit comes just one day after regulators said they would be investigating the issues surrounding Facebook’s debut on the market.
In the wake of a disastrous stock offering comes what looks like an enormous scandal for the social-media giant. It's time for us to finally wake up and see how awful Facebook truly is, says Dan Lyons.
Zachary Karabell weighs in on the Facebook IPO.
That makes sense since, at $38, the shares were wildly overpriced, valuing Facebook at more than $100 billion. Even at a per-share price of $33, Facebook carries a $90 billion valuation, which is nuts.
But now what looks like a bombshell scandal is emerging.
Reuters broke the news today that just as bankers were touting shares in Facebook to the public, they were secretly lowering their revenue forecasts for the company.
Now, Reuters reports that the Financial Industry Regulatory Authority may investigate charges that bankers might have shared the negative news with some investors, but not all.
If true, this stunning allegation could lead to an enormous scandal involving not only the bankers but also Facebook executives, says former Wall Street analyst Henry Blodget, who runs Business Insider, a financial website.
Apparently the bankers started revising their future estimates downward during the IPO “roadshow,” the tour during which Facebook executives went around doing presentations urging investors to buy Facebook stock.
While SEC chief says IPO issues need to be reviewed.
This is not the way anyone likes to debut. Facebook shares fell 7 percent at the opening of the market on Tuesday. Facebook debuted on the market on Friday at $42 a share, slightly above its initial public offering of $38 a share and finished the day at just $42.23 and then tumbled 11 percent on Monday. Meanwhile, the top regulator at the Securities and Exchange Commission said Tuesday the problems surrounding Facebook’s IPO should be reviewed. Reuters reported Tuesday that Morgan Stanley, the lead underwriter on the social network’s IPO, unexpectedly dealt Facebook a negative outlook just before it went public on Friday—a huge shock to many, as the company’s IPO had been touted as a sure deal.
Analysts have declared Facebook's IPO a sign of trouble for the company, but Zachary Karabell says it's complicated—the real problem is Wall Street's warped definition of success.
Facebook’s epically hyped IPO debuted not with a bang but with a whimper. While the company sold $16 billion worth of initial shares, the stock ended the day largely where it began, at $38 a share, leaving the company with a market cap of about $100 billion. The offering was widely derided by the Wall Street community of traders, who viewed the stock's failure to soar on day one as a sign of troubled times ahead for Facebook.
But how a company that didn’t exist 10 years ago and now commands a market value of $100 billion could be considered a failure says more about the odd lens of Wall Street than it does about Facebook itself. Yes, the social-network giant may in time prove unable to justify its lofty price, and it will need to grow at a very rapid clip (probably in excess of 50 percent a year for the next several years) to satisfy both its own goals and the expectations of investors. But dismissing the company as hype and the offering as a bust is yet another sign that it is the financial world that's in need of fixing, not Facebook.
In fact, given what has happened this past week in financial markets—with stocks plunging as much as 10 percent around the world in reaction to disarray in the euro zone triggered by Greek elections and Spanish banking fears—the fact that Facebook maintained its valuation should be seen as a small victory. And the fact that it went public at all in this climate is mildly remarkable. During a period where most investors are fleeing stocks and anything risky, both professionals and retail investors snapped up Facebook shares.
In essence, we are faced with two possible futures: either the world will be imperiled by the structural issues evidenced by euro-zone troubles and the continued panic-ridden psychology of financial markets, or the global middle class will continue to expand and the American middle class will reinvent itself thanks to new innovations in technology in general and social media in particular.
Whenever a group of Silicon Valley or tech entrepreneurs encounters a group of Wall Streeters, it isn’t long before they react as follows: “What is your problem? Why are you consumed with visions of impending doom, scouring the planet for hidden Black Swans? What happened to a creating a better world, unleashing human potential, having fun? What happened to dreaming of solutions rather than fixating on problems?” And that is why companies like Facebook are looking forward, while the financial world devolves into the crisis du jour, whether that be the fate of Greece, the pace of China’s growth, the level of risk at JPMorgan Chase, or the perils of future inflation, deflation, fiat currencies, soaring commodity prices, and debt bombs.
Spencer Platt / Getty Images
Silicon Valley has its own weaknesses: the cabal of successful investors is small and insular. They co-invest in each other’s companies, avoid public markets and stocks except when their own companies go public, and have a tendency to move in packs and latch onto fads. Facebook and other companies such as Zynga, LinkedIn, Pandora, and Groupon have made a few founders exceedingly rich but have reinforced the massive wealth disparities as surely as any reviled Wall Street institution. The only difference is that the 99 percent don’t seem to begrudge them their billions.
More to the point, for all the hype, it’s still unclear what social media actually adds to our economic prosperity. Facebook satisfies a social need to connect, but it has not demonstrated—yet—how it can help people be more productive and break free of the declining spiral of lower wages and stagnant economy. It may in time prove to be central to changing the way information is processed, and it may, along with others, become pivotal to the reinvention of work and play in much the same way the information technologies of the 1990s have so demonstrably reshaped our lives. But it hasn’t yet.
Stock price stays even on first day.
Despite starting trading at 11 percent above the $38 offering price, the much-anticipated Facebook stock quickly fell back from its peak $45 to close at $38.23. Analysts had expected the stock to rise between 10 and 50 percent. The slump dragged down other Internet and social-media companies planning on riding Facebook’s wave. The company’s slow debut probably won’t affect business, and some attribute the enormous $104 billion IPO valuation as an overreach. Among the winners at Facebook as the company goes public are Bono and many newly minted millionaire stockholders. It’s been estimated that as a result of the IPO, $2 billion in income-tax revenue will help lower California’s budget deficit.
From the number of billions in Mark Zuckerberg’s pocket to the millions of shares sold in that first frenzied minute, Matthew DeLuca breaks down the social network’s first public outing.
82 million – Shares traded in the first 30 seconds of trading. Mark Zuckerberg rang the opening bell from Facebook’s headquarters in Menlo Park, Calif., flanked by Chief Operating Officer Sheryl Sandberg.
$38.00 – Facebook’s initial offering price.
$42.05 – Price per share at the start of trading.
$38.23 – Cost per share at end of trading—a daily gain of 23 cents.
$20.3 billion – Approximate amount Mark Zuckerberg is worth after the IPO.
28 – Age of Mark Zuckerberg, as of Monday.
$16 Billion – Amount Facebook raised in its record-breaking IPO.
2 – S&P 500 companies with a higher current valuation: Amazon & Equity Residential.
Zuckerberg rings Wall Street opening bell.
Facebook opened on stock market Friday at $42 a share, the third-largest IPO in history. The social network hit the market a half-hour later than expected after NASDAQ reported "delays" due to massive amounts of data received, and Facebook's stock public two hours after Facebook founder and CEO Mark Zuckerberg rang the Wall Street opening bell Friday. Immediately after opening, Facebook shares dipped below $40 within a half-hour of being on the market, and shares on the tech site Zynga were halted. CNBC looked at the private market data for Facebook, finding that when Facebook first sold shares in April 2008 on SecondMarket, an online financial marketplace where private trades occur, the company was valued at $8.1 billion that year but within a year, the valuation had dropped to $2.6 billion. Zuckerberg addressed Facebook users "you have built the largest community in the world" and said "so let's do this" as he rang the midday bell.
By acquiring Instagram for $1 billion, Facebook gets a dominant player in mobile apps, and neutralizes a potential rival, says Dan Lyons.