Was the Facebook Deal Overhyped? (0.6% Gain)

CNBC ^ | 05-18-2012 | By: Kate Kelly, Kayla Tausche

[Red Badger]

With Facebook shares trading close to their $38 offer price and revelations that retail investors got a larger-than-expected slice of the $18.4 billion IPO, market watchers are questioning whether the social network’s debut was overhyped — not just in the media, but in the investor community.

Buy-side anticipation of a huge Day One price pop was high, and yet as of lunch time on Friday, Facebook shares hadn’t crested $45.

Experienced bankers say that with a new issue of this size, moving the shares beyond the single-digit percentage range can be tough, and that Morgan Stanley [MS 13.35 -0.11 (-0.82%) ], the lead bookrunner on the deal, has done an admirable job at keeping the stock trading in relatively stable condition.

GM [GM 21.18 -0.43 (-1.99%) ], for instance, which was an $18.1 billion IPO, only traded a few percentage points above its new issue price on its first day of trading late in 2010. Prior to the first day of trading, bankers said they didn’t expect a more than 10% upsurge on day one, given the deal’s size.

However, with anecdotal reports that some institutional investors got more shares than they were expecting, and new revelations that, according to two people close to the matter, the retail allocation of Facebook IPO shares was more than 20 percent, marking an all-time high for a new issue, some market participants are wondering whether the investor excitement toward the deal was overplayed earlier this week.

[discostu]

The business world is littered with corpses period. 4 out of 5 non-restaurant businesses go under in the first 5 years (restaurants it’s even worse).

FB has 900 MILLION users world wide. 3 entire Americas. Even if they do start to falter it’ll take a long time for that to unwind. They’re at least a good midterm investment. Between advertising and game cash they actually get a pretty decent chunk of change per user. They have at least as good a revenue stream as google did when they IPOed.

[Red Badger]

They’ve never gotten a penny from me. Now they may have sold my personal info, but that’s a whole ‘nother story.....

[discostu]

So? The list of companies I’ve never given any money to that still make money because of me is epic and huge. FB, Google, Yahoo, various radio stations. That’s the way ad revenue industries work. Doesn’t mean there’s anything wrong with the business. Yeah because of the game cash FB CAN make money from the users, but even people who don’t play the games generate ad hits. It’s not a new concept, some of the biggest entertainment empires in the world (America’s broadcast TV networks) were built on this and while it’s not working too well for them anymore there’s still plenty of companies making plenty of cash by selling other people’s eyeballs.

[lacrew]

“How the hell does Facebook make that kind of money?????”

Advertising...until advertisers figure out that Facebook ads are inneffective.

[Eva]

I don’t know, I imagine that Facebook ads could be very effective if you have the right product. A lot of young people are addicted to shopping on line.

[hannibaal]

The same could have been said of google at the time it hit the market, or yahoo. The problem was that people got almost all they asked for in the ipo which rarely occurs. So people or institutions who placed orders of 500,000 shares expecting only to get 100,000 shares actually got the full amount. The problem then is that they dont actually have the capital required to make the transactions so they had to sell right away, which basically was like a barrier not allowing it to go up. Iactually think next week will look much better since it was able to survive all the mass sellings from people who couldnt afford what orders were placed. Im an engineer tho, what do i know...

[glorgau]

Sounds to me like they priced it exactly right. The company reaped all the money from the offering - that’s the idea.

[norwaypinesavage]

Actually, the .06% gain is erroneous. 400 million shares traded in the first four minutes at what appear to be $42 per share. The remaining 200 million sold for less than that. Therefore, most traders lost money.

[sergeantdave]

You can buy 10,000 likes on your facebook page for $200. See the scam, you bloody morons.

[Intolerant in NJ]

However, with anecdotal reports that some institutional investors got more shares than they were expecting...I watched the rollout this morning on CNBC - delayed for one-half hour - supposed to start trading at 11:00AM, then 11:05, then 11:15, and finally hit the road at !!:30 with some sort of behind the scenes plays going on - rumor was that big players usually ask for 50% more shares than they really want on an IPO because they usally can't get all the ask for - but FB was providing all everyone was requesting, so at the last minute many traders were trying to return shares which they knew they couldn't sell - LOL as they say......

[windcliff]

It’s like deja-vu all over again.

[spetznaz]

Thanks for the laugh.