The Facebook floatation is now, officially, the worst of any major IPO in more than 10 years. The shares have lost more than 20 per cent of their launch value in just eight trading sessions. Nonetheless, the company seems to be on the acquisition trail again even as honeymooning CEO Mark Zuckerberg fails to leave tips in Roman restaurants, as Martyn Warwick reports.
Placed at US$38 each, Facebook shares rose (briefly), to $45, allowing some underwriters and institutional investors to make a very quick buck before selling out and moving on. However, those that held on to their shares have seen the price continue to fall every day since the launch.
At close of business on the Nasdaq in New York last night, Facebook shares were trading at $28.84 and are expected to continue their spiral downwards today and for the forseeable future as brokers cut their losses and so hasten the decline. Some analysts are now of the opinion that Facebook shares are worth a maximum of $9.70 and that the attrition will continue until the share price bottoms out within a few cents of that figure.
Sam Hamedah, the managing director of the US investment research house PrivCo commented, "Historically, initial public offerings that trade down this quickly don’t ever recover. Brokers have lost quite a bit of money and many will have their own rules about dropping out when it passes a psychological barrier.” (such as the $30 mark).
The Facebook debacle has caused the latest high-tech bubble to suffer a slow but accelerating puncture and last night, Vkontakte, the Russian equivalent of Facebook decided not to go ahead with its own $3 billion IPO, citing the mismanagement of the Facebook floatation as the reason. The public launch is now on "indefinite hold". Pavel Durov the founder and CEO of Vkontakte said the Facebook farce has “damaged many private investors’ trust in social networks”.
Since its shares hit the market on May 18, Facebook's value has fallen by $25 billion. Meanwhile, the company's founder, Mark Zuckerberg is on honeymoon in Italy and seemingly blithely unconcerned about what is happening to his company's share price. the growing tide of unrest amongst investors and potential of debilitating class action law suits. However, he does seem very aware of what's in his own pockets.
Meanwhile, senior staff back at base in California will be feverishly trying to come up with a strategy to increase the falling share price by boosting Facebook's presence and trying to monetise services and apps on mobile devices - hence the rumours that the company wants to buy Opera of Norway.
Opera has been available for sale for some time now, but hitherto potential buyers have been few and far between. That said, Opera's mobile OS might give Facebook some much-needed mobile leverage and could be the reason for the sudden and mysterious 28 per cent increase seen in the value of Opera shares over the past few days.
Facebook recently surprised the market by blowing a billion bucks on buying the photo-sharing service Instagram and it is thought that Opera would cost Zuckerberg et al another $1 billion or so. Expensive enough you might think, in trying times, but little more than chump change if Facebook decides to buy Canada's troubled Reseach In Motion (RIM), the maker of the Blackberry devices, for a rumoured $6 billion. Facebook desperately wants in to the mobile device sector while RIM is in decline and admits it is undergoing a strategic review ("helped" by J.P.
Morgan, the same outfit that "advised" Facebook on its floatation) under the terms of which "all options" will be examined. However, the social networking site could face even greater investor anger if it goes for a big acquisition so soon after its disastrous launch.
Meanwhile the brain drain at beleaguered RIM continues apace with senior staff abandoning ship with what is becoming monotonous regularity. As 6,000 rank-and-file staff get the chop, the latest senior bod to claim a seat in the executive lifeboat is RIM's senior lawyer, Karima Bawa.
Elsewhere, Facebook is about to experience a torrid summer. Let us remember that company insiders will be able to offload some or (in some cases) all of their shares on August 20 when the first "lock-in" period ends. When those shares hit the trading floor, the price is hardly likely to rise.
And that's only the start. Many unanswered questions remain about Facebook's ability to change its business model and garner the advertising revnues needed to justify even its declining share price.
Walter Price, portfolio manager at the Wells Fargo Advantage Specialised Technology Fund, says, "It was easy to get the first 5 to 10 per cent of an advertising budget to try it on Facebook and do some brand advertising, but getting the next 5 to 10 per cent you've got to displace TV and that's a lot more difficult to do." In fact, it is almost certainly impossible.
Meanwhile, that nice young Mr. Zuckerberg and his blushing bride have been doing the sights of the Eternal City. Spotted touring the Sistine Chapel by a fellow tourist, the fresh-faced tycoon's secret honeymoon in Italy was outed (irony of ironies) not on Facebook but on Twitter. Oh, the schadenfreude of seeing the biter bit.
Media rumours have it that his next stop will be the Amalfi coast so eyes peeled if you are in Ravello or Sorrento.
Last evening, Mr. Zuckerberg got some bad press when the owner of the Nonna Betta (not a joke) restaurant contacted the Italian press and TV to tell them that Mr. and Mrs. Z had enjoyed a meal of deep-fried artichokes, fried pumpkin flowers and ravioli stuffed with sea bass and yet more artichokes washed down with a bottle of water and a cup of tea. The bill came to €32 (it's in the web if you want to see it) and Mr. Zuckerberg conspicuously failed to leave any tip - not even a message scrawled on a napkin advising the staff not to buy Facebook shares.
Thereafter it emerged that Mr. Zuckerberg had been equally parsimonious elsewhere, having failed to leave a pourboire at the ancient and famous Pierluigi pizza restaurant at the Campo de' Fiori in Rome's historic centre.
Of course, Zuckerberg is no longer worth the $40 billion he was worth last week and so may have been feeling a bit strapped for cash. However, one does wonder if he would have been quite so mean at home in California where tips of 20 per cent and well above are absolutely de rigeur - and waiting staff have been known to chase non-tippers down the street hurling imprecations and stale bread rolls after them. Obviously then not a case of "When in Rome do as the Romans do" but more a case of trying on overseas something you wouldn't do back home. There's a lesson there for us all, including Facebook.
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