Facebook’s IPO debacle: greed, hubris, incompetence …
And perhaps worse: if Facebook had set out to showcase a car-crash of an IPO, it could not have done it better…. A company that produces NOTHING nor creates ANYTHING is worth $100 Billion. We are truly going collectively insane.
It is three trading days after Facebook went public, and we now know that the IPO will live forever in the history books – just not in the way anyone had planned. Had Facebook openly set out to sabotage its own IPO, it could not have invented a better or more remarkable debacle: a tale of financial chaos fit for history books.
Facebook stock has lost 20% of its value in only three days. In that alone, it is not remarkable. Large IPOs rarely perform well just after going public. Fund manager Och-Ziff, for instance, fell 24% in its first week as a public company. (And thereafter: Och-Ziff went public in 2007 at $32 a share, and now trades at just over $7).
No, what makes Facebook stand out is that, at nearly every junction where wisdom, care and moderation ought to have intervened, they did not. In law enforcement, this is called a “smash and grab” – just knocking out the windows and taking everything in sight. On Wall Street, the disregard of the IPO for normal investors brought up a vulgar old traders’ saying: “Pigs get slaughtered.” Translation: greed gets punished.
As far as autopsies go, this is a complicated one, from the spiritual to the mechanical.
There was gracelessness: Mark Zuckerberg, Facebook’s CEO, made it clear for months that he disdained the company’s IPO, and deigned to show up to only one meeting with potential investors. That couldn’t have done much to convince those investors to believe that Facebook took the Wall Street system seriously enough to give them a good return on their investment.
There was greed: executives and insiders made the IPO primarily a way to enrich their own fortunes – rather than the company’s – and their stock dump accounted for 57% of the shares sold in the offering (reinforcing the old joke that “IPO” stands not for “initial public offering”, but “insider profit opportunity”). To pour more money in the pockets of these insiders and the company coffers, Morgan Stanley, the lead underwriter, hiked the price the company was charging investors – $38 – and flooded the market with tens of millions of extra shares. (The investment bank then had to rush back into the market and buy millions of those shares to artificially support the price of the stock on the first day.)