May 30, 2012
As Shares Sink To New Lows, Embittered Facebook Investors Ponder Their Next Move — Some Blame Themselves For Getting Caught Up In the Hype and Cut Their Losses By Selling Low, While Others Blame Facebook, Morgan Stanley or NASDAQ
To say that Facebook's debut as a public company was bungled is something like saying Facebook is a website you might have heard of — either way, a colossal understatement. The response from small-time investors has been equal parts frustration, confusion and bitterness. Fed up, some are dumping their shares and accepting the losses. Others, while miffed, are holding on and hoping to ride the stock's eventual success. Some blame themselves for embracing the hype over a company whose underlying value likely didn't merit the price at which it went public. But many accuse Facebook and its underwriting banks of setting the price too high and for trying to sell too many shares. Others are pointing fingers at the NASDAQ stock market for botching buy and sell orders on opening day. Or they're angry over brokers who pushed them to buy. And others are irked over reports that Morgan Stanley, which guided Facebook through its public debut, told only some select clients of an analyst's negative report about Facebook before its stock began trading May 18 — the underwriting banks were expected to set shares at the highest price they thought the market would bear, but investors have also come to expect that an initial share price will be low enough so the stock can climb on the first day, when interest typically peaks. "With a good IPO, the investment banks leave room for the pop," said Michael Hines, a social media consultant who decided to cut his losses and sell his shares. "They didn't do that in this case," he added, an AP news release reports. Indeed, U.S. companies that have gone public this year have returned an average of 16 percent on their first day, according to Renaissance Capital — and since going public, those companies are up an average 13 percent. Morgan Stanley disputes allegations that it put its own profit ahead of investor concerns. "We have clearly put clients' interests first by correcting pricing on some trades that were mispriced because of trading glitches beyond our control," the company said in a statement, the AP release reports.
Looking back, some individual investors say they recognize that Facebook's initial $38 stock price was too lofty. It was more than 80 times the company's 2011 earnings per share. The average for companies in the Standard & Poor's 500 index is far cheaper, about 19 times earnings, reports the news release by AP writer Christina Rexrode.
Before Facebook's public debut, some investors were considering what to do if the stock price doubled the first day. Instead, it closed a paltry 23 cents higher. It tumbled $7.23 the next two days. A week later, it still hasn't begun to recover. It closed Friday at 31.91, down 3.4 percent on the day and 16 percent below its initial price. One problem was that first-day trading glitches on the NASDAQ stock exchange botched some investors' trades. And in lawsuits, Morgan Stanley is accused of sharing negative analyst reports about the company with a few favored clients. Such allegations reinforce suspicions that Wall Street is stacked against the small investor. Investors have filed lawsuits, and lawmakers are opening inquiries, according to the AP report.