

Facebook already went public, you weren't invited - dabent
http://finance.fortune.cnn.com/2012/02/08/facebook-ipo-numbers/

======
jfager
Even for financial reporting, this is an egregiously awful bit of journalism.

 _Once upon a time it was both an honor and a privilege to go public. A
company worked tirelessly for years just to get to that point and it leapt at
the opportunity to do so rather than playing it cool or blowing off bankers
when they first came calling._

I'm sure we all remember the dot-com era internet companies who worked
tirelessly for years to get a shot at the honor and privilege of an IPO. At
least, I'm assuming that he's including these companies in his false-
nostalgia, given that the two factors he blames for the loss of those halcyon
days were the exchanges themselves going public (NASDAQ in 2002, NYSE in 2006)
and the rise of HFT (which has really only grown to be a large part of the
market since 2005).

And isn't it terrible that a company wouldn't blindly jump at going public the
instant bankers came calling?

 _A comparison between Facebook today, pre-IPO, and almost any other company
that is actually public on an exchange yields very little in the way of major
differences_

Where "major differences" would have been

1\. Billions in capital, which of course private companies never had before
the early 2000s.

2\. Thousands of investors, where of course there's no major difference
between a few thousand privileged wealthy investors and tens or hundreds of
thousands of regular investors and qualification for inclusion in
institutional portfolios, mutual funds, and indices.

3\. A bump in analyst coverage, because the large armies of analysts that
roved Wall Street in the good ol' days would for some reason only cover public
companies. Oh, and also because there are already a ton of analysts covering
Facebook, even though automated trading and exchanges going public killed all
the analysts, or something.

~~~
mjwalshe
Once upon a time in the 50's and 60's IPO's where considered a bit dirty and
proper tier one investment banks did not do them.

Read Grahams intelligent investor with updating commentary the discussions of
the various booms and hot companies at different periods is fascinating
reading.

~~~
bunderbunder
This one certainly seems dirty. The number of shares actually being offered is
puny, and Facebook's in fine financial shape. It's plainly obvious that this
IPO's purpose is not to raise capital - it's to generate a pop in the share
price (as tech IPOs always do) in order to give existing shareholders an
opportunity to unload shares at an inflated price.

~~~
vivekmgeorge
To be clear, Facebook is going public for two main reasons: 1\. Because they
have to at this point. SEC rules. Once you hit 500 investors a company must
report earnings publicly. 2\. Many investors want to cash out. But this could
be delayed if reason #1 did not exist.

As for delaying going public and giving bankers the cold shoulder. MZ felt he
could run the company better as a private firm. The dot com era is an example
of companies and bankers trying to make a quick buck. Don't forgot it was
followed by the dot com crash.

------
kennystone
"They decided to go for-profit and allow anti-competitive behavior and
destructive (but high-paying) new "customers" to suck all the life out of each
day's trading with algorithmic codes."

This has nothing to do with why Facebook didn't want to go public. The biggest
reasons are (1) public reporting and data (2) the amount of effort would have
defocused them at a critical time of growth (3) they could raise huge funds
without it and (4) perverse incentives with large institutional investors,
often their largest shareholders.

------
kristianp
Bad article, but the "you weren't invited" part is correct:

"Consider that the very hot IPO’, such as Facebook, are purchased by the
underwriters before the public has even gotten a chance to get in.
Underwriters are the big banks such as Goldman Sachs, Morgan Stanley, etc.,
and the shares they purchase go to their best clients first. This includes
hedge funds, large institutions and huge money managers, not the majority of
individual investors. "

"After the opening day, when the stock goes public and begins trading, most
average investors can go in and buy shares at the trading price. But the
opening day “pop” is over, and that is where the money is at, before the
general public has had a chance." (from
[http://finance.yahoo.com/news/facebook-ipo-
etfs-180025693.ht...](http://finance.yahoo.com/news/facebook-ipo-
etfs-180025693.html) )

Unlike google's IPO which was a dutch auction, if the general public wants to
make good money in facebook's IPO, they're out of luck.

~~~
dataminer
Can you comment on why more companies do not IPO using dutch auctions? Is it
more complex/riskier for the company, than the traditional IPO model? Since
its my assumption, an auction will get the company a fairer value for their
stock.

~~~
veyron
The issue with dutch auctions is that, unless you ask for a miniscule amount
of money, the major investors in the IPO will drive down the price (call it
collusion).

The game that wall street plays with regards to IPO is simple: I'll let you
buy in most of your shares at 10 dollars if you will buy a few shares at 20
dollars when the IPO opens. This way, the average price is much closer to 10
dollars, yet it convinces others to participate in the IPO trade.

As far as the companies are concerned, the runners ensure that there is
institutional demand before the IPO goes public, to ensure that the company
can actually sell the requested number of shares. It's much easier to follow
Wall Street's rules (and leverage their capital relationships) than to stake
out on your own (essentially what google did).

In retrospect, Google the firm paid dearly, as was evidenced by the resulting
price rise.

~~~
dataminer
Thanks for the insightful explanation, though I am wondering about the
practice of creating the artificial "pop" when IPO opens, why is this kind of
premeditated pumping allowed?

~~~
veyron
The large institutional investors will not participate unless there is
something for them. There's a lot of shadiness all around, but essentially you
are asking funds to sink tens or hundreds of millions of dollars into a new
company which may be very risky. As a result, the baked-in pop gives those
investors some assurance that they won't lose their shirts.

At the end of the day, the company needs to receive cash from somewhere and
the banks don't want to carry the risk, so they offload it to their customers
(who front the cash), and they essentially offload it to the public.

------
peteretep
> And because of this woeful state of our public markets

Wait, what? He spends a couple of paragraphs decrying liquidity in markets,
and then calls this a bad thing.

------
MBlume
_But the exchanges were unhappy with being institutions solely for the benefit
for their members. They decided to go for-profit and allow anti-competitive
behavior and destructive (but high-paying) new "customers" to suck all the
life out of each day's trading with algorithmic codes. As spreads went from
fractions of a share to decimals and then decimals of decimals, the profit
margin for making markets in stocks gradually disappeared as well. This led to
a annihilation of the market makers and specialists as well as decimation of
the brokerage houses that employed analysts to cover the stocks that they
traded in.

The end result is that companies come public and struggle for analyst
coverage, their shares are whipped about by robot traders and the whims of
whatever index ETF basket they happen to be assigned to. The regulation
surrounding the reporting of accurate and timely information to their public
shareholders has become so onerous and expensive that they've essentially
clammed up, offering only the most terse and lawyer-approved updates on their
business as infrequently as they can._

I don't understand what's happening in this part, except that the author
doesn't like it. Can someone explain more slowly and less angrily?

~~~
mdda
Agreed, he seems to be mixing up a bunch of stuff here.

His rant about HFT seems misplaced : The market rules allow for robotic trades
that whittle the bid-ask spread down to wafer-thin margins. Investors
generally benefit from the greater liquidity and lower transaction spreads -
compared to the situation before the minimum price increment was set so low.

But he may have a (related) point when he complains that the bid-ask spread is
now determined by machines (and is driven to zero) : Previously,
stockbroking/marketmaking was a much more cozy operation, since there was a
minimum spread that gave the occupation a base-line profitability. That's gone
now. What's also been swept away is the research function that market-making
(sellside) firms once provided as part of the service. There's less margin
trading a single share, so there's much less incentive to try and get clients
to trade those shares with you : Much better to get them to trade more exotic
products...

Also, regulations have stopped sell-side research people getting paid for the
investment banking (money raising) part of the business. Previously, research
people would follow a wide universe of stocks, and then use that as a wedge to
get the (lucrative) investment banking business for their firm - think of it
as salary for stock recommendations, bonus for banking. Now the cross-
pollination thing is illegal, and what's basically happened is that any half-
decent stock analyst gets hired away from the sellside firm by hedge-funds
(where they can get paid doing what they love).

Another element (the regulation FD, and Sarbanes-Oxley) part increase the cost
of being a listed company for the companies themselves. RegFD means that they
have to tell investors any news simultaneously (on the face of it a good
thing, since it makes it clear that inside-information, or front-runnable
information/whispers are a no-no). However the way it is implemented makes it
a lawyer-infested process to release any information. Walking past a CFO in
the street and asking "How's it going?" now results in "You need to speak to
my Investor Relations department". And that transition now means that
information is less timely and less comprehensive information (since the IR
people are incentivized to be cautious, rather than help investors understand
the underlying business).

Sarb-Ox was also regulation founded on good intentions : The Board/CEO has to
represent that the investor communications are full and fair (my
understanding) - with the downside of going to jail. The downsides are two-
fold (1) the most secure way of communicating for a CEO is to say "Here are
the audited financials, I'm not saying a word more", and (2) the people that
this was intended to prevent from scamming the public are largely unaffected
(since they live in a world of scamming and lying anyway : what does an extra
law against it matter?)

Anyway : The basic (IMHO correct) ideas revolve around the unintended
consequences of new regulations [that are almost always devised to tackle the
last catastrophe rather than anticipate the next ones]. The rant about HFT
seemed out-of-place.

~~~
MBlume
Thanks! That made a lot more sense.

------
chernevik
This would be a more convincing take down of this "market era" if it named one
other "resourceful and clever" company implementing this model.

Put another way: When was there a market where something like FB --
explosively grown, headline potential for more, profitable -- could _not_ have
raised substantial private capital?

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spinchange
The "textbook" reason an enterprise sells shares to the public is raise more
capital as it's entering a mature phase of its business. (Not saying this is
why Facebook is going public, or this is why other companies do it anymore,
but this is the logical reason a company goes public.)

In that respect, Facebook went "public" privately last year when Goldman
invested at $50B valuation.

The broader point or context poorly laid out is that businesses don't have to
go through the same amount of public hoops that they used to raise the same
kind of "public" levels of capital.

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nivertech
The part of the article talking about stock exchanges is wrong on so many
levels.

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joe_the_user
The point of an S-1 filing is that Facebook had to disclose certain
information and was required to operate in a certain fashion. That's big
regardless of how many shares were previously floating around.

Also, correct me if I'm wrong but I believe Facebook has only sold shares
publicly on a fairly small portion of its huge valuation so in a sense you
might argue that valuation hasn't tested that much.

~~~
vivekmgeorge
FB's public float appears to be approx 5% of the company's total value. Though
relatively small, the stock price of each share should reflect the company's
total value. That being said FB is fairly unique in many ways and has been
able to draw demand for its equity both as private and now a public company,
that appears to defy typical valuations and funding scenarios. The writer
maybe correct about FB's current access to capital as a private company, but
secondary markets for most companies are generally not so liquid or
transparent for most investors.

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notatoad
if you had to be invited, how is it public?

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lclaude01
Curious about who got in first

Take a look at this

<http://i.imgur.com/ad0fJ.jpg>

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dr_rezzy
Honestly, these are quite possibly some of the most incoherent arguments I
have ever seen:

"At least, I'm assuming that he's including these companies in his false-
nostalgia..." - great assumption

"Where "major differences" would have been" - You seem to be reinforcing the
authors point here.

"This has nothing to do with why Facebook didn't want to go public." - You
totally missed the authors point here.

"He spends a couple of paragraphs decrying liquidity in markets, and then
calls this a bad thing." -You might want to check the definition of decrying.

------
AznHisoka
"Sorry if I damped your enthusiasm"

It's alright, I wasn't even slightly interested.

"You weren't invited"

It's alright, I woulda farted on your invitation.

~~~
AznHisoka
The author is writing in a very pretentious and obnoxious tone as if he
assumes we're feeling a certain way. Who does he think he is?

~~~
mjwalshe
One of the 99% like the rest of us on here.

