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The Great Facebook Fizzle


This IPO was a short, sharp shock for the small investor.

MINYANVILLE ORIGINAL The dust has not settled yet after the Great Facebook (FB) Fizzle, but it's not too early to ask just one question: Why would any individual investor in his or her right mind invest in stocks?

Sure, everybody has known all along that the game is rigged. But we thought if we watched the pros' moves closely, maybe we could pounce on a few stray coins with cat-like quickness, without the big guys noticing.

Now we have been disabused of that notion, at least as it applies to the ritual of the initial public offering (IPO).

Here are some of the reasons why nearly every single individual who bought Facebook stock after it went public last Friday lost money. (The word "nearly" is added to cover the remote possibility that some individual somewhere bought shares at the open and sold them when the price momentarily rose.)
  • It wasn't really an IPO. There's no such thing anymore. Lots of people, most of them not precisely small investors, already owned shares of Facebook that they purchased before the IPO, from companies that enable insiders to sell their shares in private companies that may go public in future.
  • Many of the early investors in Facebook, from Silicon Valley venture capitalists to Goldman Sachs (GS), sold a big portion of their shares as soon as Facebook went up on the Nasdaq. The Wall Street Journal estimates that some of these major shareholders sold up to half of their holdings. They were ready to cash in and move on.
  • Hours before the Facebook launch, company founder Mark Zuckerberg paused while learning how to knot a necktie in preparation for his imminent wedding and thought, "Hey, wouldn't it be cool to jack up the price to $38 and increase the number of shares to, like, 421.2 million?" And the underwriters said, "Yessir." Or maybe it was the other way around, but it doesn't matter. It was "priced for perfection," as they say. Meaning perfect for them, not so much for investors.
And there you have it. There are other reasons, notably a Nasdaq technical screw-up of historic proportions. The bottom line is, Facebook fell flat in its debut on Friday. On Monday, it fell another 11% by the close, and it kept going down in after-hours trading. It opens Tuesday at $33.78.

The conventional wisdom was that the underwriters, led by Morgan Stanley (MS), would step in to buy back Facebook shares to prevent a disastrous first day. They may have done that on Friday, though they won't confirm or deny it.

But now, they're outta here. You're on your own, small investor.

Weekly Web In Brief:

Chrome on Top
Google's (GOOG) Chrome edged past Microsoft's (MSFT) Internet Explorer to become the world's most popular browser for the first time, according to newly-released weekly figures from StatCounter. It's a near tie, but the trend line is dramatic: Just one year ago, IE was used by more than 40% and Chrome was just below 20%. Now, each is used by a bit over 30% of users. Mozilla's Firefox also was overtaken by Google, slipping to third place.

New Ways to Search
The competition for consumer share is bearing fruit for users of search engines. Google and Microsoft are falling all over each other in their attempts to enhance the experience, or at least differentiate their products. The latest:
  • Google is rolling out its Knowledge Graph addition to search. This addition to the search results page will display key facts related to a query. It seems designed to pique your interest in exploring a subject in greater depth and breadth, rather than simply answering a question to save the user a click.
  • Microsoft is opening up access to the poorly named, or social, enhancement to Bing, which aims to enable a collaborative approach to the search process. Users can select links on any subject, and assemble a montage of images, video and text to be shared on Facebook or any other social network. The concept was tested on college campuses, and is still being pitched as an academic tool, but presumably Microsoft won't mind if it's used for more frivolous purposes.
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No positions in stocks mentioned.
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