Friday, May 18, 2012

A Bit of a Red Face under the Hoodie for Facebook

Facebook has to have a bit of a red face, as well as some of  the investment firms they worked with, as  Facebook closed opening day on NASDAQ  at $38.23.  Meaning no first day pop.  Well, a  0.61% pop.  Part of this may have had to do with the market as a whole, as NASDAQ ended up down 1.24%.  Others wrote that     initial trading glitches at the beginning of the day played a part. Facebook is trading under FB.  No confusion with Bulgaria Air, flight code FB, is expected.

The lackluster opening, the highest the stock went was about $43, means individual investors will be able to buy  Facebook stock at the same price shares were offered to privileged investors, wrote USA Today.  Investors who piled in the first day lost as much as 15% in just a few hours.Facebook ended the day with a $104 billion valuation. And  with $16.1 billion in cash. 

The company  never fell below $38 during the day.It touched $38, a lot in the afternoon.  The price likely would have dipped below $38 if the IPO's financial underwriters hadn't moved to help prop it up, said Sam Hamadeh, CEO of the New York analyst firm PrivCo.

CBS News  commented that while the deal was the second largest in U.S. history, after GM,  the first day of trading was more “whimper than bang”.  566 million shares were traded by the end of the day. 

However, what about that lack of pop?  As written about in a previous blog, there is a whole psychology to first day pops, where “the smartest guys in the room” would like to see a pop for the individual investors.  But not too large a pop, because that would signify leaving money on the table (reduces cash available for investments and purchases of hoodies). The   below contains a link to a Wall Street Journal article about this.

Quiz question.  What Bay Area firm had an 89% opening day pop in March?  Annie’s Inc., the maker of organic and natural foods such as bunny-shaped crackers did this on the NYSE.  They trade as BNNY. 

Now that they’re public, Facebook will have to be a lot more “visible” to the investment community, and file all those quarterly reports on earnings.  The tradeoff firms make in order to get investment capital with an Initial Public Offering (IPO)!

It could get a bit interesting in November.  Facebook granted Restricted Stock Units to employees (RSU's) to allow them to participate in the growth of the company.  The    RSU's are not counted as shares under securities laws.  So Facebook avoided having to file for an IPO when it hit 500 shareholders.  The downside is that  RSU’s don’t qualify for taxation at capital gains rates (around 15%).  Facebook employees will be looking at a combined state and federal tax rate of 45% on their RSUs.  

Meanwhile, a number of Facebook employees may be leaving work a little early on Friday.  There was an all nighter  event at  Menlo Park  Facebook headquarters, prior to the NASDAQ opening bell  rung by CEO Mark Zuckerberg. Friday morning.

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