Tuesday, May 22, 2012

Facebook Faceplant Causes Facepalm


I hate to say "I told you so," but the other day I wrote that I was underwhelmed by the Facebook IPO and thought it might fall apart quickly in spite of all the media hype and high-profile buyers such as Bono of U2.

And looks like I was right - headline after headline. I don't pretend to be an economist and have no money in the stock market and probably never will, but I think I can spot a trend. Facebook is not an up-and-coming commodity anymore. It's been around too long to have an IPO, and not everyone is as thrilled about Facebook as they were about Google.

Of course, no one out here in the 99% real world should feel sorry for these new billionaires. But there are problems with the fact that Facebook employees are stuck with the stock for many months and are barred from selling quickly while the price is still decent. And what about investment portfolios that included Facebook as a sure thing? We probably won't know until the bottom drops out.

WSJ: Facebook Slides Again
Facebook's stock was recently trading down 4.5%. The stock lost 11% on Monday as more investors and analysts began to question the size of the company's public debut, which initially valued the company at $104 billion. The company is now worth about $90 billion, based on Tuesday's stock price.

"Dreams of Riches"

Facebook Provides Cautionary Tale
"It was the casino effect a little bit here," said Steve Cordasco, a registered investment adviser with Philadelphia-based Cordasco Financial Network, which oversees about $700 million in assets. "It's good for the average investor to realize that you just don't know, that the experts just don't know."
Mr. Cordasco, who referred to Facebook's debut as a "face-plant," had advised one qualified investor who wanted to put a large amount in the stock not to buy on the first day of trading. The investor took his advice and bought Mr. Cordasco a beer on Friday as they watched Facebook lumber to its close.
 Bloomberg: Analysts Who Shunned Facebook Are Heroes
Analysts who broke away from the herd and told investors to avoid Facebook Inc. (FB), the biggest initial public offering ever by a technology company, are looking like heroes after the stock plunged.
While bulls forecast benefits as companies shift advertising to the Internet, Wieser said Facebook’s price is too high and the path to growth unclear. “There’s always a risk of buying into excessive hype, using rules of thumb for valuation that are divorced from fundamentals,” Wieser, a New York-based analyst at Pivotal, said in a telephone interview yesterday. “There are many things that really speak to the uncertainty investors should be incorporating when they’re thinking about Facebook.”

SFGATE: Facebook Hedge Funder Furious
We just got off the phone with a hedge fund manager who says his fund owns Facebook stock "in excess of a $100 million.
. . . His allegations/claims/opinions:
---->NASDAQ knew it systems were broken before the Facebook IPO, and instead of aborting the offering and facing huge embarrassment, it went ahead. Traders then lost hundreds of millions of dollars as they tried to buy and sell Facebook stock without getting confirmation that their trades had been executed.
---->NASDAQ made the problem worse on Monday. NASDAQ told traders who thought they had sold their Facebook stock on Friday – but had actually not – to fill out a form by noon. This form asked traders to list the price at which they thought they had sold their stock and they price at which they actually had. Problem was: Many of these traders had not yet actually sold their stock. Because the form required an actual selling price, many did, dumping tens of millions of shares of Facebook stock on the market, and sending the stock price plummeting.

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