[Infowarrior] - Facebook IPO a relative dud (compared to the hype & hope)

[Richard Forno]

Facebook Falls Back to IPO Price

Underwriters Stepped In to Support Social Network's Shares at Offering Price

By JACOB BUNGE, JENNY STRASBURG and RYAN DEZEMBER

http://online.wsj.com/article/SB10001424052702303448404577411903118364314.html
 
Faceebook's IPO was delayed after traders experienced problems with their orders. Simon Constable joins Rolfe Winkler on Markets Hub with details. Photo: Reuters.

Facebook Inc.'s FB +0.61% public debut had plenty of buzz but not much pop. The shares opened 11% higher, but struggled to stay above their $38 offering price and ended the day up just 23 cents.

It was a tepid debut for one of the largest and most closely watched initial public offerings. More than 30 brokerages and banks were involved in the offering, which saw a nearly 571 million shares change hands on Friday—a record for a stock debut.

The Internet company's shares opened Friday around $42 and within the first half hour fell as low as $38. The stock recovered as underwriters stepped in to support the price, according to people familiar with the matter. But in the final hour of trading, the shares lost steam and fell back to the $38 level.

There have been only six other initial public offerings that raised more than $5 billion since 1995 and the average first day performance has been a 13% gain, according to Dealogic. Two of them, Visa Inc. V -2.06% with a 28% gain in 2008 and United Parcel Service Inc. UPS -1.04% in 1999 with a 36% gain, well outperformed Facebook.

Companies and the bankers who take them public typically like to see a first-day pop in the share price, to make the deal worthwhile for those buying at the so-called inside price and to increase investors' enthusiasm for the stock.

The debut was marred by a 30-minute delay in the opening of the shares, coupled with reports from traders about lack of communication about orders. That threatened to dent the reputation of Nasdaq OMX Group, NDAQ -4.39% operator of the Nasdaq Stock Market, which competed aggressively with the New York Stock Exchange for the chance to list the deal.

Nasdaq officials told exchange members in a notice at noon that its staff was "investigating an issue in delivering trade execution messages" from trades made in Facebook's IPO. Around 1 p.m. Nasdaq indicated it would provide a "manual report" to brokers with information on Facebook trades.

Once the stock opened, trading was robust—100 million shares traded in the first few minutes and more than 200 million shares changed hands in the first hour. The record for most shares traded on the day of an IPO had been held by General Motors Co., GM -1.99% at 458 million.

But during the delay, and afterwards, traders said they were having trouble changing or canceling orders they had submitted to Nasdaq's queue starting at 7:30 a.m.

Traders said the orders were accepted normally, but the usual process for canceling or altering an order wasn't accepted, suggesting problems with the queue.

"We're still waiting" for trade confirmations, said Mark Turner, co-head of sales trading for electronic brokerage Instinet, about 90 minutes after Facebook's stock opened for trading.

One investor said at 12:20 p.m. he was frustrated after a market order he put in around 11:40 a.m., for 1,000 shares, still hadn't been acknowledged by Nasdaq some 40 minutes later. "It's not reasonable," he said, adding that shorter delays for an order of 10,000 or 20,000 shares would be more understandable.

Traders speculated the glitches could be tempering demand for Facebook shares, because would-be buyers couldn't be sure where they stood with earlier orders.

Representatives for Nasdaq OMX had no immediate comment. Shares of the company were down 2% midafternoon with the market flat and other exchange operators trading higher.

One person familiar with public offerings called Facebook's a success, saying that, the delay aside, the trading indicated the stock was well priced. The person said big one-day pops are far-less common in large offerings where lots of trading can help keep pricing efficient.

Social media stocks are among the day's biggest losers. Online games maker Zynga Inc. ZNGA -13.42%  shares dropped 13% to $7.17 and have been halted after hitting a single-stock circuit breaker. The stock fell more than 10% in five minutes, prompting the halt. Zynga is closely tied to Facebook, as 11% of the social network's revenue comes from Zynga.

Facebook's offering, as expected, drew in investors large and small.

Michael Mullaney, vice president and chief investment officer for Boston-based Fiduciary Trust, which primarily represents high-net-worth individuals, opted not to put in an order with underwriters before the offering, and instead bought shares on the open market Friday.

"If we did get one it would have been a small piece," said Mr. Mullaney of an allocation. "And then who would we give it to? Which one of our clients gets the shares? I'd rather trade it on the open market with every Tom, Dick and Harry. It makes my life easier."

On Friday at 1 p.m., Mr. Mullaney said in an email that he had received his shares at the price he liked, but considered the IPO "a dud."

Meanwhile Theophilus Hodges, a 36-year-old property manager, stopped into an E*Trade branch in downtown Chicago on Friday morning specifically to open an account to buy Facebook shares, he said.

"If it wasn't for Facebook I wouldn't be here," he said as he left the branch to go to his bank and transfer money into his new account. "I missed out on Groupon GRPN -6.69% when it went public, so I'm not going to miss the boat this time."

Mr. Hodges said he plans to invest $10,000 in Facebook shares—including $4,500 of his own money and $5,500 from his mother.

Mr. Hodges expressed confidence in Mark Zuckerberg as Facebook's CEO and said he isn't worried about Mr. Zuckerberg being young. "To me, he's a genius. You know, he created something for the whole world... Everything is social now. The world is a different place with Facebook," he said.

Facebook and its stockholders are selling about 20% of the company's common stock in the IPO. By way of comparison, Groupon Inc. GRPN -6.69% sold about 6.3% of its stock in its IPO, according to Dealogic, while LinkedIn Corp. LNKD -5.65% sold 9.5%. Facebook's bigger so-called float could mean fewer extreme moves in the stock price.

Facebook's IPO is "unprecedented in terms of the demand" from average investors, said Stephen Kay, a managing director at brokerage Knight Capital who works with retail brokerages.

"I spoke to one of my big online brokers and at 6:05 this morning, when they allowed people to hit the button and make an order, there were hundreds of orders that were waiting," Mr. Kay said.

From trading floors to Times Square, Wall Street pros and regular joes had been preparing for the moment, strategizing for the open or deciding whether—or when—to buy shares.

TD Ameritrade AMTD -0.53% had 54,000 orders for Facebook shares by 11 a.m., with half the clients who requested and qualified getting an allocation, according to Steve Quirk, senior vice president of trading for the firm.

Knight Capital Group, KCG +0.32% one of the biggest aggregators of U.S. retail share trading, on Friday  morning saw an order from an investor willing to buy the stock at a price as high as $4,000, according to managing director Steve Kay. The order was essentially an indication the investor was willing to buy the  shares at any price.

—Lynn Cowan, Steve Russolillo, Owen Fletcher, Kristen Grind and Alexandra Scaggs contributed to this article.

---
Just because i'm near the punchbowl doesn't mean I'm also drinking from it.