Tuesday, May 22, 2012

The Facebook Fiasco

Written By Pastor

Yeah this Facebook story gets funnier by the day, all sorts of stuff coming to light, here are some interesting tidbits I've picked up over the last few days:

--2 days before the FB IPO, GM decides to pull its advertising from Facebook LOL
--Morgan Stanley, the primary underwriter, has an analysist who downgraded Facebook the day before the trading opened on Friday by revising down its earning estimates.  On CNBC it was stated that this is extremely unusual.
--Other co-underwriters like JP Morgan also had analysis downgrade the stock, again by revising down earning estimates the day before trading opened on Friday.  On CNBC is was stated that this is extremely unusual.
--Shares of Facebook have been trading on the 'private' market for over 3 years, at much lower prices than the IPO price of $38.  Goldman Sachs picked up a huge chunk of these shares a year ago.
--Much of the volume on the first day of trading on Friday was the selling of shares purchased by the those allowed to buy them in the private market over the past 3 years, for significant profit.
--For all of the big IPOs in recent years, never once have I logged into my Etrade account and seen an option to get in on it - for Facebook, they had a large home page banner up for weeks leading up to the IPO, offering me a chance to get in on it.
--It's been insinuated that Morgan Stanley, to cover their ass, did swoop in as Tvis mentioned and start piling their own money into it on Friday and Monday to hold up the price.  One analyst on CNBC pointed out that even though they may lose money that it would be worth it for them to do to save face in the grand scheme of things, that the damage to their reputation could be minimized for future IPO underwriting opportunities.
--The $38 IPO price equates to a valuation of the company trading at a roughly 50 price/earnings (P/E) ratio.  Apple currently trades at 11 P/E, Google 15 P/E - no one in their right mind would even think about buying FB at 3x a reasonable P/E ratio.  50 P/E ratios are screaming shorts, which undoubtedly is going on right now, the same folks who profited from the $38 IPO price are now shorting the shit out of FB.
--Option contracts are not yet available on FB, leaving investors unable to buy any Put protection to protect themselves from downside risk.  I believe the first options will be available this Thursday, which does the pity FB investors a lot of good now huh.

I also heard a comment about FB 'saving the market' LMAO.  I have heard of this before, earlier this year Apple was given credit for most of the rally in the S&P 500 this year, which incidentally turned out to be true according to the breakdowns I've looked at.  The S&P wouldn't be much better than flat for the year if you took out AAPL's absurd rise.

Funny stuff, just a huge criminal operation, operates every day, every IPO is rigged, but this one was rigged to allow the private share holders to cash out at an absurd valuation.  Usually they're rigged by only allowing the privileged few to get in on the IPO, then for the IPO to have a huge pop when trading begins, allowing those privileged few to get out in the first day or so with a huge profit.

One thing I need to know is how often are these 'private market' shares floating around for companies prior to an IPO -  I got the distinct impression that for FB this private share market was unusual in multiple ways.  Need to dig into that, probably won't though, no time.