Enough already of the special Facebook ticker on CNBC, and the constant yammering on the financial news channels about its “botched IPO”. There was nothing botched about it — FB went public, the bankers collected their fees, they extracted the maximum value for their client, and they (seemingly, reasonably) complied with the Byzantine regulations governing disclosure, IPO roadshows and initiating coverage. I’m never, ever one to defend a Wall Street culture that sometimes values money over anything else, but in this case, I think the street was merely doing its job and now Main Street is complaining because the prize in the box of cereal wasn’t as cool as they had hoped.
The number one issue being cited now (detailed coverage) is that Facebook had steered guidance on its current quarter down, based on a continuation of the trends mentioned in its S1 filing – mobile page views substituting for desktop views, meaning fewer display ads. The risk is spelled out plain as day, and anyone who claims that this is a reason the IPO process wasn’t fair or resulted in losses isn’t doing the advance reading. The stock went down because the IPO was priced at the high end of the range, and now the market is doubting the valuation. No different than any other company, unless of course you were “expecting” that FB would run up 50% in week one. An active pre-IPO market, increased offering volume and price, and underwriters looking to sell most of their holdings were the warning signs. Anyone who thought they were going to get a three-bagger at the open was looking for the customers’ yachts from the One Hacker Way vantage point by the San Francisco Bay.
There is no excuse for not doing your homework if you’re thinking of buying into an IPO or any listed company. The wealth of information available is staggering, and you only need some simple valuation metrics and a spreadsheet to decide when and if you want to invest. The days of going to the library to find a copy of Morningstar’s mutual fund reports, or waiting for expanded weekly stock listings in Barron’s, are over. Sadly, the days of initiating a lawsuit as a consolation prize are still here. If you bought FB looking to make money, and you believe in the long-term prospects for the company and a valuation model that supports your thinking, hold onto the stock. Most of the money in Google was made after the IPO, not in the first week the stock traded.
The investing public most likely to be negatively affected by the IPO pricing and valuation includes those who bought into the offering on the pre-IPO secondary market — they are subject to the same 180-day lockup period as some employees, so while they paid $32-40 each for the same stock that can be had at a lower price today, they can’t sell for at least two quarterly earnings releases – the portent of which seems to be the depressing factor (in every sense) on the stock price.