Facebook IPO: Once Again, Wall Street Wins, Muppets Lose

We warned of a social network tech bubble 2.0 over a year ago due to the hype and overvaluation of Facebook based on the reported deals by Goldman Sacks and a Russian investment firm--Digital Sky Technologies on the secondary gray market. At that time, the two deals valued Facebook at about $50 billion, with a 100+ price-to-earnings (PE) ratio.

Fast forward to 2012, Facebook actually went IPO on May 18 with a similar lofty vaulation - the $38-per-share IPO price valued Facebook at $104 billion--100+ times historical earnings (the company's profit for 2011 was $1 billion). Facebook stock has since plummeted 27% to $27.72 from its initial $38 a share. Bloomberg estimated the stock would need to sink another 20% to match the average PE ratio for the Nasdaq Internet Index based on estimated earnings in the next 12 months.

The technical glitch on NASDAQ aside, many have blamed the so-called "botched" IPO event on stock mis-price or overvaluation. On the surface, it may seem like a simple mis-pricing by the main underwriting banks and Facebook. However, judging from the sequence of reported events (see timeline below), instead of a "botched" event, the IPO is actually a total success by Wall Street standard, since concerted effort appeared to have been made to ensure an "acceptable" return for the insiders.

May 8: It was reported that Facebook "quietly" added E-Trade as one of the 33 underwriters just two weeks before the actual IPO, "making good on Mark Zuckerberg's desire to give casual [retail] investors the chance to participate", and that "the inclusion of E-Trade on such a high-profile IPO is unusual," although not unprecedented.

Favorite

0 members favorited this

View Full Size

Tags:

Comment

You need to be a member of 12160 Social Network to add comments!

Join 12160 Social Network

Comment by guest_blog on August 1, 2012 at 10:04am

Search Results

UBS: Facebook IPO Cost Us $350 Million

‎

Wall Street Journal - 1 hour ago

UBS said the loss on the Facebook IPO wiped out nearly half of its second-quarter profit, and it accused Nasdaq of a gross mishandling of the ...

In-Depth: Facebook fiasco drags UBS profit lower‎ Reuters
Blog: UBS Hit by Facebook Loss; Vows Legal Action Against Nasdaq‎ Barron's (blog)

It’s not yet clear how much UBS will attempt to recover. The company detailed what it called Nasdaq’s “gross mishandling” of the IPO in a statement.

“Due to the gross mishandling of Facebook’s market debut by NASDAQ we recorded a loss of CHF 349 million in our US Equities business as a result of our efforts to provide best execution for our clients. As a market maker in one of the largest IPOs in US history, we received significant orders from clients, including clients of our wealth management businesses. Due to multiple operational failures by NASDAQ, UBS’s pre-market orders were not confirmed for several hours after the stock had commenced trading. As a result of system protocols that we had designed to ensure our clients’ orders were filled consistent with regulatory guidelines and our own standards, orders were entered multiple times before the necessary confirmations from NASDAQ were received and our systems were able to process them. NASDAQ ultimately filled all of these orders, exposing UBS to far more shares than our clients had ordered. UBS’s loss resulted from NASDAQ’s multiple failures to carry out its obligations, including both opening the Facebook stock for trading and not halting trading in the stock during the day. We will take appropriate legal action against NASDAQ to address its gross mishandling of the offering and its substantial failures to perform its duties. Although as in all such matters there can be no assurance as to the amount of any recovery we may obtain, we intend to pursue compensation for the full extent of our losses.”

New York Times

Comment by guest_blog on August 1, 2012 at 10:04am

FB‎ - Facebook Inc (NASDAQ)‎

21.00 -0.71‎ (-3.27%‎)

Aug 1 10:03am ET - Disclaimer

Open:	21.50
High:	21.55
Low:	20.87

Volume:	9,042,370
Avg Vol:	25,946,000
Mkt Cap:	44.90B

Welcome to
12160 Social Network

Sign Up
or Sign In

Or sign in with:

"Destroying the New World Order"

Latest Activity

Top News
·
Everything

tjdavis posted a video

The Geography of Iran Explained.

Hey Everyone,This is my attempt to humanize the people and country of Iran. I hope I can educate people on the geography of this country outside of what we ...

58 minutes ago

0 Comments 0 Favorites

cheeki kea commented on Doc Vega's blog post Regrets That Cling to Me

"An awesome poem for the day. It is actually World Poetry Day a special day granted by UNESCO to…"

2 hours ago

cheeki kea favorited Doc Vega's blog post Regrets That Cling to Me

3 hours ago

Doc Vega commented on Doc Vega's blog post A Cure for Cancer?

"cheek kea thanks you so much. Yes, I agree, but there was so much espionage, mistrust, and military…"

Wednesday

cheeki kea commented on Doc Vega's blog post A Cure for Cancer?

"Yes I believe there's a Cure or Remedy for everything. As netizens across the world start to…"