Tired of browsing through hundreds of confusing articles telling you about the rise and fall of the Internet largest IPO ever? Do you feel left out of the equation (even though you helped make it possible by investing time and volunteering your personal information as a user of the social network)? Look no further; this guide will help you understand what went wrong with the most anticipated Internet initial public offering in 4 easy steps.
On the part of Facebook and its early investors who were clearly looking to make every penny they could through the increase of their allotment of shares to sell through the IPO road show.
Wrong Play: David Ebersman, Facebook CFO, telling Morgan Stanley he didn't want to see this trade "up more than 10% the first day."
2. A “We'll Do Anything to Please” Attitude:
A "we'll do anything to please attitude" from Morgan Stanley, which desperately needed a "win" in the market and sought to please its hip and cool Silicon Valley newest client, made them overstate the demand of Facebook stock overpricing it as result at $38 per share.
Wrong Play: Highly annoyed institutional investors were forced to sell shares the first day, as a result of Morgan Stanley's misguidance on the demand.
3. Selective Disclosure Allegations:
Selective disclousre allegations stemming from last minute downward forecasts from the underwriters' research analysts. In other words, underwriters knew the stock price was overrated and allegedly only told certain investors while hiding the information from the rest.
Wrong Play: This is what is ultimately causing the looming legal tidal wave of angry investors suing the Zuck.
4. NASDAQ Technical Failures:
NASDAQ's technical failures (trade order system broke down the first day of trading) caused investors to lose tens of millions of dollars in a bad omen for the now infamous social network.
Wrong Play: Leaving active market makers and investors "in the dark" for too long.
In a Nutshell: Unlike Google and LinkedIn, this was an epic failure at how to create buzz around a company's IPO. It's basic human pyschology: people want to invest in something that is going up, not down. More people would be buying shares at $32 a share, if it had priced at $25, than forcing it through the market at $38 and then watching it fall to $32. People want to catch a ride, not catch a falling knife.