Much ado about nothing

By Felix Salmon
May 18, 2012

567 million shares of Facebook changed hands today — that’s more than the total number of shares issued — at a volume-weighted average price of just over $40 per share. To put it another way, the whopping move from the IPO price of $38.00 to the closing price of $38.23 came with more than $22 billion of trading activity, and undoubtedly left the underwriting banks with rather more Facebook stock on their books than they had been hoping for. But that’s what it means to be an underwriter.

For anybody disappointed that they didn’t get their full initial allocation of stock, or who thinks that small retail investors can’t buy into IPOs at the same price that large institutional investors can, this is great news: Monday’s going to be a do-over, with everybody being able to buy Facebook stock at the IPO price.

This of course helps to point up just how silly all the Facebook IPO hype really was. Yes, Facebook is now a public company, but it’s still controlled by Mark Zuckerberg, and the IPO itself was a bit of a farce: delayed at the open, artificially supported by the underwriters at the close, and mainly serving to demonstrate that a brand-new company, which no one knows how to value, trading at a stratospheric valuation, can still somehow end up trading within an incredibly narrow range on enormous daily volume.

For that, you can probably thank the surprisingly old-fashioned book-building process, where a team of investment bankers took Facebook on a classic roadshow, complete with a slick and rather embarrassing video, all for a record-low fee of 1.1% of the proceeds. Still, never mind the low fee: the bankers were paid to do a job, and they did it, providing a rock-solid bid at exactly $38 per share and thereby sending a clear signal to any potential future client: we’re never going to let investors lose money on the first day. Frankly, there are worse ways of spending money to try to bolster your reputation.

But while this was an incredibly important deal for people working in equity capital markets, it really wasn’t important for the rest of us. Facebook today is the same as Facebook yesterday: a site where we keep in touch with our friends, and a means of staking out a bit of personal identity on the internet. If you think that’s a hugely valuable proposition, then there are hundreds of millions of shares available, now, for you to buy on the open market. And I’m quite sure that there’s no shortage of big investment banks who would be positively delighted to sell them to you. Ideally, for them, at a price somewhere north of $38.

12 comments

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“…sending a clear signal to any potential future client: we’re never going to let investors lose money on the first day”.

Please.

A record low fee of 1.1%. How did they do that IPO for only a $175 million fee? Those guys must be really efficient to only charge that much.

Posted by KenG_CA | Report as abusive

Yawn ..

Posted by Woltmann | Report as abusive

I think this proves what they say: you can never accuse Bono of being “number two.”

http://www.southparkstudios.com/clips/15 5658/bonos-sore-spot

Posted by Christofurio | Report as abusive

What I love about Facebook is that evidently nobody knows what the PE ratio is or the ROE or any of the things most intelligent investors want to know about company. Here is a company with a market cap over 100 billion dollars and no profile or financials.

Posted by Chris08 | Report as abusive

Chris08,

That’s not suprising…after all most investors, especially individual investors, are buying Facebook “the idea”, not Facebook the “financial entity”.

Anybody who actually cares about the financials isn’t buying Facebook at a PE of over 100….

Posted by mfw13 | Report as abusive

Chris08 – “the idea” vs “financial entity” – That was well put.

Posted by Kaleberg | Report as abusive

go facebook!

Posted by CoronaAdvances | Report as abusive

Let’s see – the underwriters must be sucking up stock in quant to keep the price above $38 – probably more of the smae next week. At some point soon they have to stop, and then start selling what they’ve bought. Hmmmm.

Maybe FB will end up hitting WS harder that those harpoons The Whale took?

Posted by MrRFox | Report as abusive

Salmon is right : a farce. Or,if you prefer,a temptative
of robbery. Why make an IPO so big in a market so weak?
Couldn’t wait for September? This sound bleah… I fear
in September the market will be worse . This time the
market was more smart than Wall Street,refusing to buy.
But some bankers cashed.

Posted by SteveP | Report as abusive

Yes Steve the usual people cashed. A cash cow can have the milk dry up or die a horrible death and be worthless in an instant, and who knows it better than those selling it. (This cow had no milk and was actually a bull with no straw, so will be selling for its pound of flesh in the near future)

How sad am I that I use the telephone, write emails and send pictures via the “old fashioned” way and have no Facebook friends to call my own and no use for sharing all my private info online so that businesses can collect it!

*shudders* I might not be able to buy any shares as I am so traumatized! (I am growing food on a farm instead … silly me, to be doing such useless stuff like that when I could be helping the world stay connected!)

The farce needed some sarcasm to liven it up.

Posted by youniquelikeme | Report as abusive

Yeh, Warhol was a fag.

Posted by jneric | Report as abusive

Well, that went well for Zuckerberg! Instant cash billionaire, got married… then the shares crashed, closing today at $34. As Steve Miller said “Take the money and run…” And that’s just what he did… This says a lot about the morals of society in general, and how Mammon has almost completely taken over. There’s an old Jewish saying about doing deals “Always leave something for the next man”. MZ obviously hasn’t heard that one.

For investors, Aloe Blacc has a useful song for you “I need a dollar, a dollar is what I need…” Sung four times of course.

Posted by FifthDecade | Report as abusive