Every time there’s a high-profile IPO, a few clever journalists will wheel out their contrarian take. LinkedIn had a huge pop? Then it’s a failed IPO, and Morgan Stanley “screwed the company and its shareholders to the tune of an astounding $175 million”. Facebook fell off a cliff? Then it’s a great success for the company, because it means it got the best price it possibly could. Matt Yglesias has a typical such post up, saying that “Mark Zuckerberg Made out Nicely in the Facebook IPO”. He explains that “for people making the initial sales an anti-pop is ideal. It means no money was left on the table. Or, rather, it means that negative money was left on the table”.
It’s going to be a long time before the various lawsuits shake themselves out, but one thing’s already clear with respect to the Facebook IPO: absolutely no one has come out of it looking good. It’s worth going down the List of Incompetence here, because regardless of whether any of this was illegal, there are a lot of extremely well-compensated people who, to use a technical term, screwed the pooch on this one.
Yesterday, it was the greenshoe — the standard feature of IPOs which also happens to be an officially-mandated case of naked short-selling. Today, it’s another odd special case: the way in which analysts’ estimates of companies’ future earnings are deliberately not made public prior to the IPO — except to select investment-banking clients who are likely to put in large orders for IPO stock.
Matt Levine had a very wonky post on Friday afternoon about the dynamics of the Facebook IPO in general and of the very misunderstood greenshoe option in particular. Now that we’ve all had a nice relaxing weekend, it’s maybe worth revisiting that greenshoe, because it’s actually possible, given Facebook’s tumbling share price today, that Morgan Stanley will make a substantial amount of money on it.
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.
Update: Everything I had here originally is wrong! SecondMarket has just updated its infographic, changing “average transaction size” to “average amount sold”. It seems that the average seller sold to 4.9 buyers, which means that the average transaction size was not 454,565 shares, as SecondMarket originally said, but rather 93,186 shares. And so most of the SecondMarket numbers here need to be divided by 4.9. Here goes:
You think markets are efficient? Check this out: Barnes & Noble stock opened 2012 at $14.75 per share and falling fast; by January 5, the opening price was just $9.50. At that price, the entire company was worth just $550 million, and there was a very real fear that the entire company could go to zero, following in the footsteps of Blockbuster and other real-world retailers selling content more easily bought online.
One of the more intriguing concepts to come out of the INET conference was Steve Keen’s idea for what he calls “Jubilee shares”. It’s not exactly new — he’s been writing about the concept since October 2010 — but he refined the concept for INET, and it has a bizarre kernel of genius to it, for all its flaws.