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Facebook IPO ripples out through Wall Street

February 02, 2012|Nathaniel Popper
  • An employee walks past one of the many Facebook logo-inspired art pieces as another pauses in front of a chalkboard "Facebook Wall" encouraging people to write something at Facebook's new corporate headquarters in Menlo Park, Calif.
An employee walks past one of the many Facebook logo-inspired art pieces… (Peter DaSilva )

Reporting from New York — On the first day of trading after Facebook filed for its initial public offering, the information revealed by the company is rippling out through Wall Street.

While it will be months before Facebook shares are actually traded, the most obvious impact from Facebook's prospectus is being felt in the shares of technology companies, and particularly companies that were listed as partners of Facebook.

The technology-heavy Nasdaq composite index is up more than twice as much as the Dow Jones industrial average and the Standard & Poor's 500 index in early trading.

The biggest beneficiary is the social-gaming company Zynga, which was revealed in the IPO prospectus to provide 12% of Facebook's revenue last year, and which was described in the filing as a vital partner in Facebook's future rise. Stock in the company is up 15.7%, or $1.66 to $12.26. The company described by Facebook as its main competitor, Google, is up 0.7%, or $4.17, to $585.00

Firms on Wall Street are also buzzing about the the winners and losers among big banks in the IPO. 

As expected, Morgan Stanley won the top underwriting position, which will provide fees, cachet and an inside edge for future business in Silicon Valley. Goldman Sachs was expected by many to have the second position, in part due to its deal with Facebook last year to sell some of the company's shares privately.

But that deal went haywire when legal questions were raised about the plan, forcing Goldman to only offer the shares to clients outside the United States. On Wednesday, J.P. Morgan was given the second position and Goldman came in a disappointing third.

It's not all bad news for Goldman, though. As Dealbreaker points out, the shares that Goldman bought last year are expected to score a profit of $190 million for Goldman and $700 million for its clients when Facebook goes public. That is likely to be significantly more than all of the underwriting fees together.

Moving forward, investors are talking about whether Facebook's shares will be worth buying once the company finally goes public in a few months. So far, there is not a lot of enthusaism among the smart money crowd. Bloomberg notes that if the shares are priced as expected, Facebook will be valued at five times the level of Google against earnings. To justify those prices, Facebook will have to keep up a breakneck rate of growth. 

"Based on recent IPOs, investors who are able to buy in at the offering price once it’s determined could be looking at below-average returns if they seek to buy and hold. They may face a large tax bite if they sell into an early run-up in the stock price," a Bloomberg article says.

One reason the stock may be unattractive to investors is because shareholders will have little control over the company. The filing Wednesday makes it clear that Mark Zuckerberg will retain tight control over the company up to and perhaps even after his death.

As Dealbreaker's blogger Matt Levine put it: "If your theory of public corporations is 'they should be controlled by and for the benefit of the public shareholders,' this may trouble you. If your theory is 'I’d follow Mark Zuckerberg anywhere,' then, carry on."

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--Nathaniel Popper

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