Facebook Failure: The Carnage To Social Media Stocks Has Only Begun

So the Facebook (FB) IPO is now complete. Zuckerberg has collected his billions, the underwriters took their (discounted) selling commission, investors have taken a bath, and the class action suits are already being filed.
 
The transaction was a disappointment by any objective measure.
 
Investors who received allocations ahead of the transaction had a very short window to liquidate shares at a profit. And if you’ve ever played the IPO game before, you know that “flipping” shares on the first day is a great way to ensure you never see another IPO again (unless of course you’re a multi-billion dollar fund).
 
Investors who didn’t get shares on the deal – but still chose to buy in the aftermarket – are in even more hot water. Many of these buyers consider themselves “traders,” but have quickly transitioned to “investors” as underwater positions are held in the hope of getting bailed out by a rebound.
 
Even the underwriters got a bum deal. Since Facebook was the most widely anticipated IPO in years, it was considered a “privilege” to be part of the deal.
 
The underwriters were willing to price the deal for a much lower concession than they would typically charge for a transaction – because being a part of the FB deal would put them in the good graces of their clients, and help them win future investment banking business.
 
Morgan Stanley (MS) and the other underwriters have huge reputation risk after the most widely anticipated IPO of the decade broke below the deal price on the second day of trading – resulting in losses for their best clients.
 
Speaking of reputation risk, NASDAQ OMX Group (NDAQ) is in major damage control mode after botching the opening and leaving traders unsure of whether they were filled on orders – and at what price. Think about it: the exchange had literally YEARS to prepare for this transaction, and yet they completely dropped the ball. Facebook is already reportedly discussing plans to move their listing to the NYSE, and it is unlikely that the NASDAQ will be awarded a major IPO for years to come…
 
Joe Weisenthall makes an interesting argument that ALL investors were harmed by Facebook – whether they participated in the deal or not. The billions of dollars used to purchase new shares had to come from somewhere – with the net result being a twisted Click here for disclaimer

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Written By: Mercenary Trader