This is a syndicated post, which originally appeared at Money Morning. View original post.
It’s the third trading day for Facebook stock, and the finger pointing over what went wrong has begun.
Facebook (Nasdaq: FB), its underwriters, and the Nasdaq are all red-faced after the lackluster debut of the largest-ever tech offering.
The hyped-up Facebook IPO was finally priced at $38 last Thursday, raising $16 billion. Shares opened Friday around $42 amid technical difficulties at the Nasdaq, and ended the day just a few cents above the offering price.
On Monday, shares slumped as much as 13%, ending down 11%, even as all U.S. indexes rebounded from their worst week of the year. The Dow climbed 132 points.
Facebook shares on Tuesday slumped another 8.5%.
“What a colossal faceplant,” Money Morning Chief Investment Strategist Keith Fitz-Gerald said Monday in a market report. “The hope was that millions of investors would get caught up in the hype and drive prices far higher than the initial $38 IPO pricing, thereby allowing early investors to flip their shares at a huge profit. Unfortunately, reality is a tough taskmaster.”
Then the blame game started.
As Fitz-Gerald noted, “The animals are beginning to turn on each other.”
Who to Blame Over Weak Facebook Stock Price
One of the main culprits getting blamed for the Facebook stock price fiasco is the social media giant itself. That includes the 28-year-old, just married, multi-billionaire Facebook CEO and founder Mark Zuckerberg.
The underwriters also are taking heat for the mispricing. While the catalog of underwriters was a lengthy list, leader Morgan Stanley is getting the most blame.
The bank, along with Facebook executives, agreed to increase both the IPO size and price just days before the May 17 IPO, disregarding recommendations from some co-managers, according to Bloomberg News.
Facebook hiked the number of shares being sold in the IPO by 25%, to 421.2 million. It also increased its asking price to a range of $34 to $38 a share from the initial $28 to $35.
Francis Gaskin, president of researcher IPOpremium.com, told Bloomberg, “It’s a combination of Zuckerberg’s ego for that $100 billion market cap, and the shareholders who wanted an exit. Somehow it just missed them that this was mispriced. ”
“They overplayed the enthusiasm and probably misread the atmosphere of the marketplace,” Keith Wirtz, CIO at Fifth Third Asset Management, told Bloomberg.
If Facebook had stayed with the original size and price terms, investors may have enjoyed a more robust first-day pop.
Facebook shares instead ended the first day barely changed from its IPO price. The most likely reason it didn’t fall was only because Morgan Staley interceded to prevent it from slipping below the debut level.
A slew of investors say they felt the underwriters deluded them. Bloomberg reported one London-based investment manager, who preferred to remain anonymous, said bankers indicated demand was so strong that he placed a bigger order than he thought he could get. When the whole order was delivered, that gave him 40% more Facebook shares than expected. He sold most of that stash on the first day.
In the days leading up to the IPO a plethora of reports said the IPO was “massively oversubscribed.”
While wiping egg from their faces, Morgan Stanley and Facebook are pointing the finger at the Nasdaq. They found the Nasdaq culpable for not properly handling the volume, for delaying trades, and being slow with executions and reports.
Nasdaq CEO Robert Greifeld told reporters May 20 that the system glitches “had no apparent impact in the stock price.”
The U.S. Securities and Exchange Commission (SEC) said it will review the trading.
“It was like the gang that couldn’t shoot straight,” Michael Mullaney, who assists in the management of $9.5 billion as CIO at Fiduciary Trust, told Bloomberg. “The underwriters mis-estimated what actual demand was, and there was pure execution failure out of the Nasdaq.”
Related Articles and News:
- Money Morning:The Facebook IPO Facts: The Good, The Bad and The Ugly
- Money Morning: Who Wins with the Facebook IPO
- Money Morning:Facebook’s IPO Price Too High? Not For The Woz
- Money Morning: Facebook IPO Price Range Values Company Near $100 Billion
- Money Morning: Facebook IPO: Where’s the Love, Mark Zuckerberg?
- Bloomberg News:Facebook Tumble Means Morgan Stanley Gets Blame For Flop