Facebook's botched IPO: Winners and losers

The social network's entry into the stock market is off to a disastrous start, and as the dust settles, it's clear some players made out worse than others.

By TheWeek.com May 23, 2012 5:48PM

Image: Man with laptop (© Comstock Images/Jupiterimages)Facebook's (FB) rocky debut on the stock market has taken another turn for the worse. Shareholders have filed lawsuits against the company and the banks handling its IPO, claiming that Facebook and its partners duped prospective investors.

The suits cite a Reuters story reporting that Morgan Stanley (MS), the chief underwriter of the IPO, lowered its forecast for Facebook's revenues just before the IPO and shared that information with only a handful of its big-time clients. Government regulators are also investigating Morgan Stanley on suspicions of foul play.

Meanwhile, Facebook shares remain well below the starting price of $38, a sign that investors are not as keen to own a piece of the company as the pre-IPO hype suggested. But not everyone involved in the IPO is having an absolutely horrible week.

Who won in the Facebook IPO and who lost?


Mark Zuckerberg and other insiders
The Facebook CEO and other early investors -- including hedge funds, venture capitalists, Facebook executives, and U2 frontman Bono -- all benefited from the whopping $16 billion that the company raised on its first day of trading. They sold their shares at around the $38 IPO price, leaving eager investors with stock that quickly plummeted in value.

High-speed traders
The mania surrounding the Facebook IPO was an optimal scene for high-speed traders who use computer algorithms to make money off split-second transactions. "This means that if a major investor is about to buy a large amount of a company's stock, these high-speed traders can buy shares ahead of them and then resell the shares, seconds later, for a profit," says Dean Baker at Britain's The Guardian.

Investors who sold high
Facebook's share price actually rocketed to $45 in the first hours of trading, which means some savvy investors have "swollen" hands from "the high-fives [they've] been getting because they managed to dump the stock on some other poor slob while the price was still above water," says Mark Gongloff at The Huffington Post.



Even if Zuckerberg made out like a bandit, "Facebook's stock continues to perform more embarrassingly than your grandmother on Facebook," says Adrian Chen at Gawker. Shareholder lawsuit aside, the social network also has to face questions about Morgan Stanley's pessimistic forecast, which indicates "Facebook is still struggling to figure out how to make money off its continent-sized audience," says Derek Thompson at The Atlantic.

Morgan Stanley
The chief underwriter of the IPO is getting slammed for setting Facebook's share price too high and selling way too many shares, a combination that weakened demand and sparked a flurry of selling. Morgan Stanley could also be in legal trouble if it turns out that the investment bank was "cherry-picking which clients were privy to the fact that its analysts had dimmed their outlook on the social network," says Steve Schaefer at Forbes.

Nasdaq (NDAQ)
The exchange has admitted that its technology couldn't handle the large volume of trades on opening day, a black eye for a stock market that has advertised itself as the go-to exchange for tech companies. The snafu caused trading delays and prevented orders from being confirmed, which "certainly played a role in the IPO's failure as a number of high-priced orders never went through by the time closing bell sounded," says Matt Rego at ValueWalk.

Ordinary investors
When you add up Morgan Stanley's alleged shady backroom dealings and Zuckerberg's massive payday, it's easy to see why the Facebook IPO "is being seen as yet another Wall Street betrayal," says Taylor Marsh at her blog. Regular investors got screwed while "insider type information protects the Wall Street elite."

Sources: TIME, Reuters, NewsRoom America, MTV, The Guardian, The Huffington Post, Forbes, Gawker, The Atlantic, Wall Street Journal, Voice of America, ValueWalk, TaylorMarsh.com

More from The Week 

Tags: FBMS
May 24, 2012 1:29PM
The "elite" on Wall Street have destroyed this nations financial stability and until some regulations are put in place to make them pay consequences for their actions it isn't going to change.  A slap on the wrist isn't going to change a thing.  What is it going to take to bring about real change?  There needs to be real change in Washington if we want to salvage what is left of this country.  The career politicians will never have the solution because they are the problem.  We need;  not just a new President, we need new legislator  with term limits.  I have never understood how we could allow congressmen and senators to serve longer than a president.  The only way things are going to change is if the voters start demanding change.  We need to wake up to the fact that the biggest "finger pointers" in the legisature are the ones who have been there for decades and leading the way to the distruction of this nation stability.  The "good ole boys club" in Washington need the financial support of the Wall Street elite.  How could we possibly expect them to oversee what big finance is doing?  I wonder how many in the Congress and Senate got the insider warning about the facebook fiasco?  Don't be naive and say that wouldn't happen!   
May 24, 2012 4:02PM

I have tried to post the below comment on a couple of topics regarding the Facebook IPO, and I keep getting denied because my post “contains a hyperlink or appears similar to spam”, even though just about every topic of conversation of yours lately contains several dating service ads.

Could you tell me what about this comment appears similar to “a hyperlink or appears similar to spam”. Please revise my post and try again?  What is so wrong with this post???

Too bad that I didn't have a bunch of money to bet on shorting Facebook, I could be a rich man now!!!

You know, buy high and sell low, if you can get out before the whole house of cards collapses, just like in real estate!!!  This Facebook IPO kind of reminds me of the Duke brothers in Trading Places bidding up the frozen concentrated orange juice market on false crop estimates!  

Margin call, gentlemen!  What comes around goes around, eh?   Just what America needs, a few more formerly rich people!!!

Welcome to the Bottom 99% Club, will that be a cheeseburger or fried chicken sir???

Trucker Mark                                                                                                                                                                        
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