Personally, I think that Mark made a great move with the IPO. It's really silly to have an IPO at price $x, when it's well-known that the price will jump to $y > $x on the first day of trading. It's basically a reward for the elite, for the investors that have enough capital to be approached by the underwriting investment banks. It's money that most companies leave on the table, but Mark played it optimally.
Huge mix of incentives here. I agree with you from a financial perspective, but it's just more complicated (for all kinds of dumb reasons).
A) Publicity. Do you want good headlines or bad headlines from the IPO?
B) Secondary sales: It's kind of silly, but if / when you go to sell more shares the people who have made money are more likely to buy (against all logic) because some of them think of the money they made as a cushion against losses.
C) Banks want to please their customers. Think of this as part of the fee for the IPO. Typical underwriting fees are 7%, but they could be 10%, all arbitrary, but they basically charge some extra points that they choose to give to their clients in the form of IPO allocation for continued business.
D) Those same banks in (C) might be the people who help the executives moves large blocks of stock in the future (not easy to sell 10 million shares of a company without having large price impact). Executives in particular want a good relationship with their underwriters and if they're too aggressive on price they might not get it.
Agreed that none of these are super compelling, especially for a very long-term owner like Zuckerberg.
B) Sure, but you want to encourage long-term investors, not short-term traders.
C) Sure, but how does Facebook benefit from that?
D) I'm pretty sure there's enough competition in the market that a single bank rejecting the block trade won't impact the final execution price too much.
It stills screws everyone who is dumb enough to buy at the IPO price and the general public who is dumb enough to believe its real. They paid the Aug 2013 price to get Facebook in 2012.
In any case, the predicted price before the IPO was exactly the IPO price. That's fair. If your view was that FB has a lot to grow and the IPO price is too low, you would buy it. If not, you wouldn't. Back then, nobody knew its price is first going down a lot, and then up even more.
Oh, interesting. I looked up recent IPOs on Nasdaq and ones from last month have options now. First Data (FDC) has been trading only 3 weeks and has options. But really low volume and ridiculous spreads. RACE has been trading only 3 weeks for less time and has more options. Perhaps they are exceptional due to their size?
Not that this would help with FB a whole lot since it'd have dropped a fair amount by the time you could buy options.
The rules aren't based on time, but basically on diversity of shareholders (there need to be a lot of shareholders and a lot of shares outstanding) which makes sense.
You need 7m publicly held shares outstanding (many IPOs don't do this, a lot of shares are controlled by underwriters and insiders who can't sell at the IPO) at least 2,000 shareholders and some minimum trade volume. There's a minimum share price too, but that doesn't effect IPOs.
CBOE probably has them, or possibly through your broker, but they handle compliance so the nuance of the rules isn't terribly important (if you can buy or sell options for a security through your broker they have already met the standard).
The numbers I mentioned are in the Federal Register, but quite a while ago. The numbers are still current, though other parts may have changed:
Facebook's IPO flopped because of a glitch in the nasdaq where orders weren't being filled for hours and then multiple orders were being filled. It was not because investors didn't like the stock
I don't think the NASDAQ glitch had anything to do with it. FB flopped for many months after the IPO, not just on the first day. A much more likely reason for the decline that lasted months and brought the price down to $18/share is that investors didn't like the stock.
NASDAQ glitches don't curse a stock for months at a time.
Right. The stock flopped because it came out at a time when Facebook was still trying to transition to mobile. Their revenue from PC's was fine but they seemed to be missing the boat on mobile revenue and analysts were unconvinced they could monetize mobile.
Then they had a quarterly report that blew the lid off of mobile revenue and since then the stock has been a rocket. They executed mobile well and that's what the market was looking for.
They've only gotten stronger as Twitter has floundered after coming out strong. I do not have a position in Twitter but if they figure out how to add users (what Wall St. wants to see) they too will explode higher. They have said they do not expect any significant user growth this year and not until some time next year as new strategies get put in place.
If my wife starts using Twitter then I'll load up on the stock.
The glitch was also an anomoly to the nasdaq system as the typical ipo behavior was usually to buy up shares.
Rather in FB's case, there was a flood of order cancellations (in response to the news) entering the system that would reset the ipo book, preventing the ipo from going off.
EDIT: See https://en.wikipedia.org/wiki/Initial_public_offering_of_Fac.... It lost about half of its value before it started its ascension to today's valuation.