Rare is the chance to buy a heavily hyped tech IPO at its offering price, if you're an individual investor.
Even rarer – oops – is the opportunity to buy it at a 10 per cent discount, or more, on its second day of trading.
That, folks, sums up Facebook Inc. , which debuted Friday at an offering price of $38 (U.S.), and, after a brief move higher, struggled to make any gains.
Despite my personal qualms about Facebook as a long-term proposition, I decided to bite: In the last minutes of trading Friday, I bought 50 shares for one of my retirement accounts, at $38.01 each.
Alas, I'm down about $250, as Facebook opened at $36.56 today and traded as low as $33. Have I made a huge mistake? Is it true, as a headline on U.S. cable channel CNBC's website says, "Facebook's Stock May Keep Falling: 'There's No Bottom'"?
That seems a bit apocalyptic. Still, though, Monday was full of second-guessing and finger-pointing as to how the most anticipated initial public offering in years became an expensive dud.
Much of the chatter Monday was about the Nasdaq Stock Exchange's difficulty in processing Facebook orders Friday, which the exchange blamed on an overwhelming number of cancellations in early trading.
But, also, with the benefit of hindsight, many point to Facebook's decision to bump the size and price of its offering – from 337 million shares, at a range of $28 to $35, to 421 million shares at the upper end of a $34 to $38 range.
Increasing the size and price of an offering is almost never a bearish indicator for an IPO, however; the opposite, a scaling back of size and prize, usually suggests a tepid reception.
In part, though, the sheer size of Facebook's offering may have made it different. The original plans called for offering just about 10 per cent of the company, a not abnormally large amount. But at a $100-billion valuation, that's $10-billion in stock.
The combination of more shares at a higher price resulted in almost $5-billion more shares for sale on Friday, more than $15-billion in all.
A little-noticed, but telling, indication that things might not go well was news late Thursday afternoon, reported by Dow Jones Newswires, that Morgan Stanley, one of the lead underwriters, raised the number of shares its retail investors could purchase in the IPO. Each account could get up to 5,000, a ten-fold increase from the previous limit of 500.
That doesn't suggest a scarce supply of shares.
Also, it was unhelpful that Facebook's offering date ended up at the end of one of the worst weeks in the market in some time. The U.S. market indices had their largest weekly losses since last November, noted Fred Dickson of regional brokerage D.A. Davidson & Co.
Worse, said Art Cashin, the head of NYSE floor trading for UBS in an interview with CNBC, U.S. trading volume increased every day, sequentially, while prices fell. That didn't happen even during the period when U.S. markets went from their 2007 top to their March 2009 bottom.