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Ryan Cefalu, who lives with his wife and two kids in Baton Rouge, Louisiana, saw in Facebook Inc.'s (FB) 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.
[Related: Facebook IPO News]
[Related: Facebook IPO News]
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?'
‘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
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."
Retail Investors
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. (ETFC) 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."
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