First full day of trading ends with stock below offer price
The end is nigh, the end is nigh, cry the hawks
THE Facebook initial public offering (IPO) last Friday (May 18) generated the same amount of hype and hope that the Google’s IPO did back in August, 2004. The latter brought cheer back to the tech industry after the debacle of the dotcom bust; while the Facebook listing marks a new era, some would like to believe.
Google offered more than 19 million shares at US$85 each using a unique auction format. On the first day of trading, the stock started at US$100.01 and ended at US$100.34, up US$15.34 or 18%. The whole exercise raised US$1.67 billion, at the time the biggest IPO ever by an Internet company.
By contrast, the hawks are out over the Facebook listing, painting it a disaster. Trading on the Nasdaq stock exchange was delayed because of technical glitches, and while it began at 13% higher than the offer price of US$38, it finally closed just a bit above at US$38.27. This was also thanks to the lead underwriter Morgan Stanley stepping in to defend the offering price on the open market.
Crash, disaster, flop, sag, sink and other such words were used in news headlines. Did I say hawks? One would think the vultures were already circling.
Some media reports got a bit more sober by Sunday, noting that while those who saw the IPO only as a way to make a quick buck may complain about being shortchanged, it was a success by most other measures. It raised US$16 billion and gave the social networking giant a value of around US$104 billion.
“The best IPOs maximize capital raised by the company while minimizing dilution for existing shareholders and employees,” investor Dan Scholnick wrote in TechCrunch.
However, on Monday, May 21, its first full day of trading, Facebook shares sank 11% and ended at US$34.03. That was a decline of almost 25% from last Friday's intra-day high of US$45 a share, Reuters reported. That’s US$11 billion wiped out from its market cap.
"One of the things that we are seeing in Facebook is a lot of emotional trading, in that over the weekend much of the media coverage was negative, and that could be weighing on investors' decisions to get out of the stock," said J.J. Kinahan, TD Ameritrade's chief derivatives strategist, added the report.
Emotional trading? Of course. There is a reason why the term market “sentiment” is used. The world of high finance and stock markets, to those of us on the outside, has always looked like one built not on any hard science but mere alchemy, as George Soros once described it. Analysts may measure and weigh all sorts of equations, but can never factor out psychology or the mob mentality.
And what was the psychology behind Facebook’s IPO?
I can’t help think that a lot of us took it a lot more personally than we would have with any other IPO, and that there were more people hoping for a comeuppance than usual.
We may have loved buying books through Amazon.com, but it was just that -- a great e-commerce service. Google became such an indispensable part of our online lives that it became a verb, but it was just that – a fantastic tool that we couldn’t conceive doing without. Until today, I know of people who enter full URLs on the Google search bar to get to where they want to go, rather than just doing so on their browser.
Facebook stripped away that distance between user and technology tool. It was about us putting our lives on the Internet – our family moments and photos, our relationships (and their status), our holidays, pictures of our pets, pictures of toddlers going through potty training, our politics, our trials and tribulations. Sure, there are photo-sharing services and online forums where you did a bit of this, a bit of that, but Facebook brought it all together under one roof.
It was the digital repository of our personal lives, and some of us took it as a personal affront that the company was going ahead to become this great big monolith that was probably going to drown us in advertisements and irritating pop-ups, tracking our lives to sell to third-party marketers and other horrors, just to make the quarterly profits that public-listed companies live or die on.
I wonder how many of us out there wanted the IPO to fail just so that our favorite social networking service would remain the same.
This time, it was all a bit more personal.