Facebook, Week Two: Fortunes Made and Fortunes Lost (Mostly Lost)
It's not quite two weeks since Facebook went public, and the saga of the IPO continues to provide a near-endless stream of headlines. The most recent victim is, surprisingly, Mark Zuckerberg, the 28-year old CEO, for whom the public sale of Facebook stock translated into a dizzying rise -- and slow fall -- from the ranks of the world's wealthiest citizens.
Meanwhile, a cadre of investors -- including a precocious 11-year-old stock player -- continue to complain that a variety of factors either obscured Facebook's true value or got in the way of the smoothly executed trades that would have meant a quick fortune for them.
The Tragic (Largely Fictional) Tale of Zuckerberg
According to most media watchers, the Zuckerberg tale is a tragedy, The Social Network, Part Deux. In this sequel, the young antihero takes his company public, sells a pile of stock, and experiences a brief moment in the clouds as he manages to squeeze his way onto the Bloomberg list of the 40 richest people on the world. Sure, he's right below Azim Premji, a generally-unknown 66-year-old Indian software magnate, but the point isn't where young Zuckerberg is on the list, but rather that he's officially made it. As Oscar losers always say, it's an honor just to be nominated.
But Zuck barely managed to land his deluxe apartment in the sky before Facebook's stock -- the shaky, overvalued bedrock on which he built his castle in the clouds -- began to crumble. Before you could say "massively overhyped," the price of FB shares started to collapse, from $38 to $31 to -- at close of trading Wednesday -- $28 or so. Meanwhile, the young CEO, whose name is now synonymous with evaporated paper wealth, finds himself kicked out of the Bloomberg top 40 party. His replacement? Luis Carlos Sarmiento, a Colombian banking billionaire so obscure that, when CBS Money Watch described him as a Mexican banking billionaire, nobody noticed.
That's the tale as it currently stands: a classic, Greek-style tragedy of hubris, epic overreach, and equally epic failure. It's compelling, exciting, and educational. The trouble is, it is also largely made-up.
What Really Happened
To begin with, Zuckerberg clearly never intended for the Facebook stock sale to be a quick money play. When the company went public, he sold less than 6% of his shares, mostly to raise the funds necessary to pay the tax bill on his remaining holdings. This, by the way, stands in stark contrast to many CEOs -- like Angelo Mozilo and Stephen Schwarzman -- who seemed only too eager to sell their holdings in their companies. Then again, Zuckerberg has never made a secret of the fact that he plans to stay with Facebook indefinitely.
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And, to be honest, it doesn't seem like the young CEO is hurting. The day after Facebook went public, he married his longtime sweetheart, Priscilla Chan, in a move that many considered romantic (he didn't make her sign a prenup) and others considered coldly well-planned (by marrying her after the IPO, he probably shielded most of his wealth in the case of a divorce). Either way, Zuckerberg and Chan are currently enjoying themselves in Italy.
(Side note: For one recent meal, the happy couple spent $40 on a dinner of fried artichokes and ravioli. They didn't tip [it's not common practice in Italy]. In other words, Zuckerberg and wife are already figuring out how to make their small fortune go a long way.)
The Rest of the Investors
So things are okay with the Zuckerbergs, but what about the rest of Facebook's investors? Unfortunately, most of them haven't been doing quite so well. As the stock price has tumbled, the media has echoed with furious recriminations. Blame has been slung in all directions: Depending on who has the microphone, the villain may be Zuckerberg, Facebook, or Morgan Stanley -- the IPO's main underwriter. Most Wall Street watchers agree that NASDAQ, the exchange that hosted the IPO, was more or less incompetent. Morgan Stanley (MS) has suggested that it may reimburse purchasers who overpaid for the shares; meanwhile, Facebook is allegedly trying to move its stock to the New York Stock Exchange.
Such a move will come too late for many investors who were not able to buy and sell shares fast enough. The latest poster boy for those who were burned by the Facebook IPO is, literally, a boy: 11-year-old Sam Lesser, a New York-based fifth-grade entrepreneur who had hoped to bet his stake on Facebook, but wasn't able to execute the necessary trades.
According to The New York Post, Lesser owns his own company, SML Networks, which sells bracelets and skateboards. With $10,000 that he's saved from his sales, Lesser hoped to buy Facebook shares. Unfortunately, NASDAQ's lousy system got in the way, cutting out the poor kid's sale and preventing him from cashing in on the profits he had hoped to make.
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As with the much-discussed Zuckerberg disaster, however, this tale also has a few holes. To begin with, Lesser claims that "we could have made money on this," suggesting that he planned to sell his shares fairly quickly. Had he bought at $38, then sold when Facebook briefly surged to $41.68, he would have made nearly $1,000. However, had Lesser kept his shares past 3:45 p.m. May 18, his investment would immediately have started losing value. As of Wednesday afternoon, it would be worth around $7,400.
So was Lesser undone by NASDAQ, or saved from a big loss? While the answer is unclear, one thing is certain: If he wants to buy and hold, the young investor might want to wait for a little while longer -- it looks like Facebook's price hasn't finished falling.
Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at@bruce1971.
