Collateral Damage from Facebook’s Implosion

by Alyssa Oursler | August 3, 2012 9:25 am

Facebook (NASDAQ:FB[1]) has become a four-letter-word on Wall Street in the past few months, exemplifying how quickly an exciting spring fling can shrivel up in the summer. The social media mammoth[2] was the third-largest IPO of all time and also one of the worst — going public at $38 and touching a low of $19.82 during Thursday trading.

Yes, it’s been bad. As a result, Facebook is getting labeled as a dud or disappointment or far more disparaging names. The best way to describe it, though, might be something like the sound of a vortex sucking in victims from all side and pulling them into an ever-deepening abyss.

And Facebook’s market cap has been demolished since its IPO. While it started out at around $115 billion, the company lost $25 billion or so in the first nine days alone — more than the estimated 2011 GDP of Bolivia or Paraguay, Yahoo Finance reported. Since then, it has steadily dwindled. Now, Facebook’s market cap is around $43 billion — less than half the original value and barely enough to be considered a mega-cap at all.

Beyond the obvious hit that shares have taken, take a look at other collateral damage coming from this implosion of an IPO:

• Mark Zuckerberg, of course, has to be first up on the list[3]. The father of Facebook helped his baby walk on its own two feet, only for it to come crashing down — a fall with a personal price tag to Zuck of close to $8 billion.

• And you can’t forget about co-founder Dustin Moskovitz. Well, actually, most people do given that superhero Zuck tends to steal the spotlight from his sidekick — now in terms of being the biggest loser as well. Still, Moskovitz is around $2 billion lighter right now.

• Let’s take a break from the insiders for a bit, and wander into investor territory. Billionaire Mark Cuban was just one of many big names who thought FB would be a good buy (ha!) and soon realized his mistake. Cuban bought 150,000 shares — which comes to total of $5.7 million based on the IPO price of $38. But word got out that he was cutting his losses around a month later. Based on the average price of Facebook in June, the loss had to be at least seven figures, and Cuban said himself that he “took a beating[4].”

• Fidelity Investments was another early buyer, handing over $200 million in May in return for some shares. Last month, though, Fidelity became a Facebook infidel and started sizing back its stake[5] — more than 20 of its funds sold around 1.9 million of their shares. While the exact amount of Fidelity’s loss on those shares hasn’t been released, it could be in the ballpark of $16 million based on July’s average share price.

• Investment firm Citadel also took a huge hit[6] in its broker’s deal unit, thanks to shares it snatched up after the IPO. It reported a loss around double what Fidelity was crying about — $30 million to $35 million.

• Both David and Goliath were victims, though. The Atlantic Wire reported[7] on everyday folks who lost money, including one man who was charged $4,000 for shares he never bought — no one can escape Facebook’s fail, it seems. Another Average Joe bought twice as many shares as intended because of a trading glitch, which cost the equivalent of a month’s salary. Ouch.

• Some losses, though, are even sneakier. Investors could be suffering from the struggling shares and not even know it because over 160 mutual funds — including ones that claim to be investing in value and dividend stocks — bought stakes in the company[8]. Facebook definitely doesn’t fit that bill, and I’m not sure why a fund would want it even if it did.

• Next up: California. Yes, you heard correctly. The budget-challenged state had been expecting to bring in around $1.9 billion in income tax revenue from Facebook executives like Zuckerberg,  based on its calculation of an average selling price of $35. Silly state. Thanks to the drop, California is going to see hundreds of millions of dollars less[9] come in — a total amount that remains to be seen. The suspense is killing me.

• Kayak (NASDAQ:KYAK[10]), which first filed to go public in November 2010, also got hit by Facebook’s wreckage. The company delayed its offering after its fellow Internet company flopped. Sure, it ended up going public last week with a solid debut, but it still highlights the IPO drought that Facebook’s fantastic fail started.

• OK, back to the insiders. Sheryl Sandberg watched her stake shrivel from $72 million to $43 million, for a loss around $29 million. She’s probably cursing the fact that she got pulled onto board as the token chick after a firestorm of protests[11]. Then again, she still has a pretty good chunk of change in her pocket, along with a large number of shares that haven’t vested and will be worth more than $1 billion when they do. Atta girl!

• And finally, the biggest loss of all from Facebook: good ol’ investor confidence. Many retail investors had abandoned the stock market since the financial crisis, and this promising company seemed to be just the push needed to get them back in. Instead, retail investors who took the plunge lost hundreds of millions, and skepticism about Wall Street has only intensified.

Well played, Facebook.

Usually, when things go awful, people often console themselves by saying they have nothing left to lose. For Facebook — and seemingly anything that’s connected to it — that point hasn’t been reached yet.

What (or who) is next?

Source URL: https://investorplace.com/2012/08/collateral-damage-from-facebooks-implosion/

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