7/30/2019 What Not to Do While Planning an IPO

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FINANCIAL Chronicle Weekend May 26, 2012

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METAMOVE

JILIAN MINCER

Reuters

NEW YORK: Its been less than aweek since Facebook went public,and while the IPO made CEO MarkZuckerberg and many others verywealthy, the botched way in whichthe offering was done has sparked in-vestigations, lawsuits and regulatorythreats. It has also sparked a lot ofanger towards the social media com-pany, lead underwriter Morgan Stan-ley and the Nasdaq stock market.

Here is a list of eight things thatwent wrong with the Facebook IPO-a what not to do list for the nextbig technology company consider-ing a public listing

1Charge too much: Facebookraised the price of its shares abo-ve a reasonable valuation given

its earnings and revenue. The $38price tag was 100 times historical ear-nings. By comparison, Apple trades at14 times historical earnings, whileGoogle is at 19 times.

2Sell too much stock: Facebookfloated 421 million shares wortharound $16 billion at the offer-

ing price, the biggest ever US Tech-nology company IPO. As soon therewere some wrinkles, supply over-whelmed demand. Many bankerswere especially concerned that Face-book demanded a larger than usualblock, about 25 per cent, be set asidefor ordinary investors, who typicallyare more willing to flip their purchasein the hope of a quick profit.

3Fall for the hype: Facebook, Mor-gan Stanley and others believedthe hype, some of it self-generat-

ed, that the companys shares wouldpop 30 per cent to 50 per cent on thefirst day of trading, and miscalculatedthe demand. Facebook increased thenumber of shares at the last minutewhile bad news was coming out. Thendelays in the start of trading on Nas-daq and later disruptions in matchingbuy and sell orders gave some share-holders time to reconsider and canceltheir orders. All of this resulted in lessdemand and a dropping share price.

4

Selective disclosure: Even ifMorgan Stanley and other un-

derwriters didnt do anything il-

legal, they werent upfront aboutwhat they knew about the companyand whom they told. Morgan Stanleyand at least three of the other under-writers lowered their forecasts forFacebooks second-quarter and full-year revenues, but the bad newsreached only a small group of bigclients. The company and Facebookhave denied any wrongdoing, but reg-

ulators and lawmakers have opened

and reviews, and some shareholdershave sued Facebook and MorganStanley.

5Have a distracted CEO: Someinvestors are asking whetherFacebook CEO Mark Zucker-

berg was on top of the whole processenough given the many thousands ofinvestors who were about to buy a

slice of his company. He appeared in

New York at the companys invroad show in his trademark hofailed to appear at some other show events, and declined to hceremony at Nasdaqs main York site in Times Square for theing debut. He was also busy planhis nuptials his wedding to ltime girlfriend Priscilla Chancurred one day after the IPO.

6Dont plan for the worst-cNasdaq CEO Robert Grepartied last Friday

Zuckerberg while the bell was at Facebooks Silicon Valley hquarters to kick off trading, bjust that time a major crisis brewing back east at Nasdaqs Technical glitches delayed Fbooks debut by 30 minutes many buy and sell orders for hafterwards, Nasdaq said

Wednesday that it made the wfix for a technical glitch, worsethe initial problem. The US Seties and Exchange Commissionow reviewing the matter, anleast one lawsuit has been filecusing Nasdaq of negligence.

7Avoid the Google road: Fbook sold its shares throutraditional Wall Street

which is a more subjective probecause its managed by the inment bankers. By contrast, wGoogle went public in 2004, it isstock through a more transpaand democratic process knownmodified Dutch auction. Underers gathered bids from investor

gardless of their connections orof their portfolios.

8Alienate your customers:company that transformedmeaning of the words

and friend, the events of theweek werent so friendly. IPO plems managed to upset thousaninvestors who are also Facebooktomers. In a sign of the image plems it has created, the headlinone New York Post columnThursday was: Warm, Fuzzy tures, and a cartoon in the snewspaper depicted a distrabull s lumped over a computerturing a Facebook page thinkinworst unfriend, unfriend,

friend, unfriend, unfriend.

What not to dowhile planning an IPOFacebook offering sparked probe, lawsuits, regulatory threats & anger towards the social media fir

Despite a slowdown in itsonline advertising business,Facebook floated 421million shares of around$16 billion

Morgan Stanley loweredits forecasts for Facebooksfull-year revenues, but thebad news reached only afew big clients

Technical glitches byNasdaq delayed Facebooksdebut by 30 minutes andbuy/sell orders for hoursafterwards

AP

UNDER REVIEW: The US Securities and Exchange Commission is reviewing thetechnical glitch at Nasdaq at the time of Facebook listing