Wednesday's gains come amid weak market
Shares of Facebook bounced higher Wednesday in their first sign of a pulse since the company went public late last week and saw its uber IPO battered by lawsuits and finger pointing. Facebook made some serious cash from the IPO — about $16 billion — but it certainly lost face.
The shares closed up 3.23% at $32. A “buy” rating and a $40 price target from brokerage Needham & Co. was the first crumb of good news since a botched IPO dented the global social network’s aura of invincibility.
Investment banks that underwrote the IPO bought stock frantically to keep it afloat on its first day of trading last Friday, and it was downhill from there, plunging 18% in two days.
Wednesday’s gains come as the overall market including media stocks took a hit on heightened worries about the Eurozone. Leaders are confronting the region’s debt woes at a summit in Brussels. A late-day rally lifted shares to break even for the day with the Dow a shade lower and the Nasdaq, where Facebook is traded, a hair higher, dwarfed by the social network’s sharp uptick.
The jump follows an investor lawsuit filed in Manhattan this week accusing Facebook and underwriting banks, led by Morgan Stanley, of failing to widely disclose negative revenue revisions made by their analysts during Facebook’s roadshow. On Wednesday, San Francisco law firm Hagens Berman Sobol Shapiro announced it is investigating Facebook and its underwriters for possible violations of federal securities laws. Such suits are common, and most don’t lead anywhere. But they are a measure of discontent.
Another investor is launching a class-action lawsuit against the Nasdaq market, which has admitted that major technical snafus including delays in confirming orders contributed to rocky trading on day one. The huge size of the issue was a factor, with 421 million shares hitting the market in what had been heralded as one of the biggest and the most hotly anticipated IPOs. Investors as well as many of Facebook’s 900 million global users seemed to be clamoring for a piece of the action.
Reports surfaced Wednesday that the New York Stock Exchange is taking the opportunity to woo Facebook from the Nasdaq, where most tech stocks are traded.
Evidence of wrongdoing may remain hazy, but a few things are clear, and they’ve got more to do with hubris than anything else. Facebook jacked up the number of shares it sold the week before the IPO, and it proved to be way too high. Blame for that seems to be centering on Facebook chief financial officer David Ebersman. The price of the shares was also hiked up just before the offering and was simply too steep.
For anyone listening, there were plenty of dubious investors who publicly questioned both the quantity and price in the weeks leading up to the IPO and many who said they planned to sit out the deal. It’s no secret that Facebook has had a hard time growing its advertising revenue in step with its subscriber count, and it’s trying to figure out how to monetize the increasingly large number of subs who access it on mobile devices.
Rich Greenfield of BTIG Research initiated the company at neutral on Monday, saying, “The IPO priced at a level well above where we foresaw compelling 12-month returns. Brands are still learning how to use Facebook.”