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The great Facebook debacle Part 1 #mugs #muppets


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Facebook IPO Frenzy Costs Main Street More Than $600 Million (1)
2012-05-24 07:38:42.842 GMT

(Updates with German stock trading in 12th paragraph.)

By Danielle Kucera and Douglas MacMillan
May 24 (Bloomberg) — Ryan Cefalu, who lives with his wife
and two kids in Baton Rouge, Louisiana, saw in Facebook Inc.’s
much-anticipated initial public offering a chance to buffer his
retirement fund. His expectations fizzled along with the stock
within the first minutes of trading.
“It’s disheartening to know that things get over-hyped,”
Cefalu, a 34-year-old data-systems manager who spent about
$4,000 on the stock, said in an interview. “That’s about a 12th
of my annual income — so a month’s salary. I’m trying to do an
on-my-own retirement kind of thing.”
Facebook, a site used by 901 million people worldwide,
allocated more than 25 percent of shares to retail investors,
said two people familiar with the offering who asked not to be
identified because the process was confidential. That means the
value of stock bought by that group for $38 in the IPO has
dropped by at least $630 million in total, based on the closing
price of $32 yesterday and assuming investors held onto the
stock.
While asset managers and hedge funds got to buy the stock
in private trading years before the IPO and investment banks
made money in the offering, small-time investors had to wait
until last week’s IPO for a piece of the action. The outcome:
After Facebook and its underwriters misjudged demand in pricing
the IPO and glitches on the Nasdaq hampered trading on the first
day, the world’s largest social-network website lost 18 percent
in three days. The stock is still about 16 percent under its $38
IPO price after paring some losses yesterday.

‘Should I Bail?’

Facebook, the biggest technology IPO in history, turned
into a quagmire of blame. Buyers of the stock sued the company,
Nasdaq OMX Group Inc. and the underwriters, claiming they were
misled. The U.S. Securities and Exchange Commission and the
brokerage industry’s watchdog both said they may review the
offering, and the scrutiny prompted Morgan Stanley, the lead
underwriter, to defend its handling of the IPO in a statement.
“I thought it would be fun to get in on the initial
frenzy,” said Linda Lantz, an online marketer in Granite Bay,
California, who bought 100 shares. “Now it makes me think ‘Oh
god, should I bail or is it going to come back?’”
For Cefalu, whose children are age 12 and 1, the first-day
glitches meant more than a bad day of trading: they made him buy
twice as many shares as he intended after an order he canceled
went through hours later, he said. With shares of Zynga Inc.
slumping along with Facebook, he estimates he lost a combined
$2,250 as a result of the Facebook debut debacle.

Technical Problems

Michael McClafferty, a freshman finance major at Michigan
State University, saw his “first big investment” turn into a
$3,000 loss when he sold the shares at $35.
“I didn’t want to lose more,” McClafferty said.  “I
didn’t know what to do.”
The 19 year-old student estimates he spent $8,000 more than
he wanted to while repeating orders that wouldn’t go through on
the first day, and failing to cancel them because of the
technical problems.
“I didn’t know what happened,” he said. “Then I was
like, ‘they should be able to do something about it.’ They
messed up pretty big from what I see, and it hurt more people
than just me.”
The stock rose 3.2 percent to $32 at 4 p.m. yesterday in
New York. In German trading today, it climbed 1.1 percent to the
equivalent of $32.08 as of 9:34 a.m.

Retail Investors

On its debut, the Menlo Park, California-based website
jumped to $45 at the start of trading, which was delayed 30
minutes, before ending the day up 0.6 percent at $38.23. It
paled in contrast with Google Inc.’s 18 percent jump in its 2004
initial public offering, Visa Inc.’s 28 percent gain in 2008 and
LinkedIn Corp.’s 109 percent surge last May.
“The reaction of the retail investor is ‘Wow, what a
flop,’” Jay Pestrichelli, co-founder of the Omaha, Nebraska-
based investment adviser Zega Financial, said in an interview.
Larry Yu, a spokesman for Facebook, declined to comment.
Facebook increased the number of shares sold and the price
range days before the IPO, raising $16 billion and valuing the
company at $104.2 billion.
Pat Brogan, a Yahoo! Inc. manager who trades on sites run
by E*Trade Financial Corp. and Fidelity Brokerage in her spare
time, called the experience of buying Facebook stock the
“biggest fiasco” in her 30 years of day trading.
“They flooded the market with so many shares,” Brogan
said. “I’m actually going to dump them if they get back to
$38.”

Big Gamble

Demand from retail buyers was higher than normal for
Facebook, with personal investment website Sigfig.com seeing 10
times more orders than it had for other recent technology IPOs,
said Terry Banet, chief investment officer for the site.
“Facebook wanted to get more retail involvement and they
succeeded,” Banet said.
Some investors managed to take advantage of the initial
gain. James DiMaggio, a 29-year-old product line sales manager
at Ametek Inc. in Morton, Pennsylvania, said he bought 200
shares at $38, sold half for $40.98 and made about $280.
“The other half is now tanking,” said DiMaggio, who
estimates his losses so far at $320. “It was really exciting in
the beginning. I don’t gamble, and this is obviously a gamble.”

Long-Term Potential

In the wake of the stock’s losses this week, small-time
investors took to the Web to express their agitation on sites
including Twitter Inc. and online investing community StockTwits
Inc.
“There’s a lot of questioning about the IPO process in
general and a sentiment that the real investor is getting taken
by the larger Wall Street,” said Phil Pearlman, executive
editor of StockTwits.
Some investors still see potential in the long term. At
Sigfig, 7 percent of users who bought Facebook on May 18 sold it
the same day, below the 15 percent to 31 percent first-day
flipping of stock that has been more typical of recent
technology IPOs, according to Banet.
“Short term fluctuations don’t bother me,” said Charles
Landry of Sacramento, California, who bought 1,000 shares on May
18. “Facebook has the potential to be, in the long term, one of
the iconic companies in Silicon Valley, a la Google, a la
Apple.”
Renee Morrison, who runs accounting at Empyrion Wealth
Management in Roseville, California, had never bought a stock in
her life before investing in Facebook last week. She too plans
to wait it out, she said.
“I have been very well educated and prepared that it’s
kind of like gambling, there’s no guarantee,” Morrison said.

For Related News and Information:
Facebook stories: FB US <EQUITY> CN <GO>
Internet industry research: BI INET
IPO Data: IPO <GO>
Top technology news: TTOP

–With assistance from Ari Levy in San Francisco and Sarah Frier
and Bob Van Voris in New York. Editors: Cecile Daurat, Elizabeth
Wollman

To contact the reporters on this story:
Danielle Kucera in San Francisco at +1-415-617-7163 or
dkucera6@bloomberg.net;
Douglas MacMillan in San Francisco at +1-415-617-7134 or
dmacmillan3@bloomberg.net

To contact the editor responsible for this story:
Tom Giles at +1-415-617-7223 or
tgiles5@bloomberg.net

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