Logo of Phnom Penh Post newspaper Phnom Penh Post - Facebook IPO increasingly losing face

Facebook IPO increasingly losing face

Facebook IPO increasingly losing face

The largest technology company IPO ever, involving the first company in the US to go public at a valuation over US$100 billion, has been coined an embarrassment.

The losers are Facebook as the issuer, Morgan Stanley the lead underwriter, Nasdaq, the exchange Facebook chose to list on, market makers such as Knight Capital and Citadel, and the retail investors who were seduced to participate as Facebook allocated the largest-ever retail investment portion on record for an IPO.

The winners are the company founders, who became billionaires overnight, the venture capitalists who were early investors in the company and company employees who were rewarded with stock. So what are some the main reasons the most hyped IPO in a decade went wrong?

Greed probably ranks the highest on a long list. The issue price of the shares was originally in the region of $28 to $35 with 337.4 million shares to be offered, a market capitalization of around $93 billion if priced at the high end.

Just days before the IPO, Facebook persuaded the underwriters to not only increase the issue price range to $35 to $38 but also include a greenshoe of an additional 50.6 million shares for a total issuance of 388 million shares.

With the final issue price of $38 the company was valued at approximated $104 billion.

With 2011 revenues of $3.7 billion and a net profit of $1 billion, the company was selling at over 28 times revenue and a P/E of 105. Technology industry peers such as Google and Apple trade at P/Es of 18 and 13 respectively.

But declining quarter-on-quarter revenues and the information provided to the underwriters by Facebook, caused Morgan Stanley, Goldman Sachs, and JP Morgan to cut their revenue forecasts shortly before the IPO. There are a growing number of investor class action suits claiming that these main underwriters selectively told some investors but not all.

In addition to the lawsuits, the US House and Senate committees that oversee the financial sector and main US regulators SEC and FINRA are planning to investigate this and other issues surrounding the IPO

Nasdaq’s dismal performance caused further damage. At the onset Facebook’s public debut was delayed 30 minutes. It appears the IPO software was not designed to handle the enormous volume of this particular IPO. A flood of cancellations combined with software flaws lead to an imbalance of buys and sells, sending the program into a loop.

It is believed 30 million shares were mishandled leading to incomplete, unfilled, and incorrectly filled orders.

While the exchange has a fund of $13 million to deal with claims, the estimated damage is $150 million, market makers Knight and Citadel are each claiming losses of $30 million to $35 million alone.

With current market conditions and Nasdaq’s botched performance, the gates are likely closed at least temporarily for future tech IPOs. The shares now hover around $27 at a valuation of $74 billion, a drop of 28 per cent.

The combination of negative disclosures, a botched IPO, and concerns that the hype is fading, may lead to further declines.

Anthony Galliano is chief executive of Cambodian Investment Management.
[email protected]

MOST VIEWED

  • Rainsy will return at ‘favourable time’

    Opposition figure Sam Rainsy on Saturday suggested he would not return to Cambodia as he had previously promised, saying that like liberators King Father Norodom Sihanouk and Charles de Gaulle, he would only do so at a “favourable time”. “I will go back to Cambodia

  • Temi tourism project approved by the CDC

    The $500.4 million Tourism, Ecological, Marine and International (Temi) tourism project has been approved by the Council for the Development of Cambodia (CDC), according to a notice on its Facebook page on Monday. The project is part of Chinese-owned Union City Development Group Co Ltd’s (

  • US Embassy urged to stop ‘disrespecting sovereignty’

    The Ministry of Foreign Affairs and International Cooperation called on the US Embassy in Phnom Penh on Saturday to respect the Vienna Convention on Diplomatic Relations after it called former opposition leader Kem Sokha “an innocent man” – a move deemed to be “disrespecting Cambodia’s

  • NagaWorld casino sees net profit of more than $390M last year

    Phnom Penh’s NagaWorld casino posted a 53 per cent net profit increase last year at $390.6 million, a sum which is almost equal to the combined net profit of all Cambodian commercial banks in 2017. NagaWorld’s parent company, NagaCorp Ltd, is listed on the Hong Kong