PUBLISHED:20:23 EST, 4 September 2012| UPDATED:22:45 EST, 4 September 2012
The botched initial public stock offering of Facebook shares has seen over $50 billion wiped off the tech-giants share price in a little over three months – that is more market value than Lehman Brothers lost in 2008, the year it filed for bankruptcy.
This sobering reminder of the financial mismanagement of Facebook’s I.P.O came on the day that shares in the firm closed down nearly two percent, or 33 cents to $17.73 as analysts on Wall Street said they feared the company’s stock has not yet hit rock bottom.
Ending its first day of trading in May valued at $104 billion, the social networking giant’s share price has since plummeted, leading to calls for resignations at the very top.
Facebook founder and CEO Mark Zuckerberg (left) is coming under pressure to act following his firms botched I.P.P with C.F.O David Ebersman (right) coming under scrutiny
And the man that experts have bgun to start pointing fingers at is Facebook’s chief financial officer, David Bersman.
Despite the two public faces of the firm being founder Mark Zuckerberg and chief operating officer Sheryl Sandberg, Mr. Ebersman was the chief architect of the I.P.O.
A man carries a box after leaving the Lehman Brothers European Headquarters building in Canary Wharf in east London on September 15, 2008. The U.S. investment bank imploded over three days as it filed for bankruptcy after losing tens of billions from its value
Over three months since the May 18th launch and with more than $50 billion wiped off the tech-giants market value, the focus for the over-pricing is falling on Mr. Ebersman.
Lehman Brothers: Collapse of a Wall Street Giant
- The collapse of Lehman Brothers on September 14th 2008 is thought to have accelerated the global economic down-turn which began in late 2007.
- The investment bank, which was the world’s fourth largest after Goldman Sachs, Morgan Stanley and Merrill Lynch filed for liquidation after suffering huge loses in the mortgage market.
- The firm which was worth around $65 billion at the beginning of 2008, suffered a loss of investor confidence throughout the year that caused its share price to drop to just below $20 billion in September of 2008 and ultimately in one frantic week, bankruptcy.
- The collapse of the firm has led to the central banks of countries around the world, including the Federal Reserve pumping trillions of dollars into global financial markets to keep them from collapsing.
- Following the end of the investment bank, the term a ‘Lehman moment’ became known as the shorthand for a financial implosion with devastating global effect.
It has been reported in the New York Times that Mr. Ebersman signed off on Facebook’s increasing pricing, which ended up at $38, when he had originally planned for between $29 to $34.
While Mark Zuckerberg reportedly jokes to his employees, ‘So, you’ve heard we’re firing David?’ the falling stock price for Facebook is creating problems for investors and its ability to attract ambitious new engineers and staff.
This is because some two billion shares are currently held by staff who joined before 2010, but despite these restricted stock options holding a higher value at $24.10, they have not risen as the hard working staff might have been led to expect.
The reasons given for the misjudged I.P.O price seem to focus on the errant advice given to Mr. Ebersman by banking advisors from Morgan Stanley, JPMorgan Chase and Goldman Sachs.
All three firms supported his decision to sell at $38, when even Goldman Sachs thought they should be sold for slightly less.
The simplest reason given by Andrew Ross Sorkin in the New York Times is that Facebook, Mr. Ebersman and the bankers all believed their own hype and pushed forward with misplaced confidence for the highest possible price.
From another point of view, Mr. Ebersman would probably have been keen to avoid the exmple of LinkedIn, which saw its shares rise by 110 percent on its first day of trading.
While this seems on the surface to be positive, it is in fact a sign that the company undervalued its shares and handed $350 million to investors that it could have used itself.
Mr. Ebersman is said to have wanted to make sure that Facebook did not ‘leave money on the table’.
However, in reality it seems that he massively overpriced the firm and thereby created the polar opposite of the LinkedIn situation.
While Mr. Ebersman is credited with keeping Facebook’s $8 billion worth of credit open with Wall Street banks, an important lifeline should the share price falter more, he has work to do to regain the trust of other shareholders.
According to Richard Peterson of Capital IQ, 67 percent of technology companies whose share value 90 days after opening was lower, were still below that price the following year.
Heady Days: On May 18th Mark Zuckerberg launched his firm’s I.P.O which valued it at $104bn. Within three months more than $50 billion has been lost from its value
Since the May I.P.O Facebook co-founder Dustin Moskovitz has dumped over a million of his own shares in the firm and original investor Peter Thiel (right) has reportedly sold the majority of his stock in the company
However, some are more positive on the prospects of the social networking giant going into the end of 2012.
‘We remain positive on Facebook as we expect advertising revenue to re-accelerate in the back half of 2012 and into 2013, even as users rapidly shift toward mobile,’ said JPMorgan analyst Doug Anmuth