Why Facebook’s IPO Bombed

By Peter Horne (Reprinted with permission from Pete’s blog, Echoed Thoughts)

I Just Have to Run Faster than You…

And so the Facebook IPO has happened… and the bear has been unleashed on the stock.

What a shock!

Come on… as early as January 2011, Facebook looked like it was starting a “pump and dump” exercise.

Remember when a well-known investment bank took a stake in Facebook and made a market in the shares for private shareholders? Investment banks don’t invest; fund managers invest. Investment banks take risk on to their balance sheet because they think they can make money on the turn. They take it on… they need to get it off at a profit. Time to…
Pump.

Remember when the same investment bank sailed so close to the SEC rules when doing a placement that they had to raise capital outside the US and could not offer the placement to US investors?
Pump.

Remember when there was a steady information flow of private trades that slowly but surely indicated how valuable the stock was in the private market which surely indicated how valuable it was when it finally got to IPO?
Pump.

And what about the breathless press, managed to perfection, who wrote in awe of the second coming of the tech boom?
Pump.

And then finally in the last week pre-IPO – OMG it’s worth so much more than what we initially said and so the IPO price went up.
Pump.

And then the existing shareholders dump their stock on the new shareholders.
Dump.

A friend told me a story about two people running away from an angry, hungry bear. The first says to the second… “Do you think we can outrun the bear?” The second replies… “I don’t have to outrun the bear; I just have to outrun you”.

The private investors in Facebook just outran the public.

It was just so obvious.

And the gamekeeper sleeps.

Cheers,
Pete

Comments

[arbitrage]

Hi Pete. Yes, you are correct. The private investors in Facebook just outran the public.