Monday Grok: Facebook IPO — not everyone’s as greedy as a Wall Street underwriter

Suckers went missing so Morgan Stanley had to prop the price

In the last 72 hours Mark Zuckerberg made a hero of his bank manager and an honest woman of his wife. That’s a hell of a weekend. There’s far too much Facebook in the news right now. And nothing really more that we can add to all the coverage of the IPO, other than to make the obvious point that the secondary markets which valued the social network at $104 billion before the IPO pretty much got it right. The fact that Facebook’s price neither spiked nor tanked is not the negative that has been portrayed in parts of the media , but more an acknowledgement that buyers and sellers pretty much agree for the time being.

So instead, we will restrict our FB IPO coverage to this little vignette from <i>Reuters</i> (and linked here from Business Insider). Lead underwriter Morgan Stanley got ar*e-bitten by the greed bug earlier this week and boosted the size of the IPO by $16 billion. No doubt they felt that the coverage and the excitement around the float would draw in the investors just like it did for Groupon and LinkedIn. But in truth, $104 billion is a spectacular valuation and the stock was unlikely to pop much beyond that, especially in light of the negative coverage around key advertisers in the days before launch. And of course the small matter of the horrendous meltdown in European financial markets over the last few days didn’t help.

But maybe fortune favours the foolhardy. Or maybe not. According to the Reuters report, “Morgan Stanley may have spent billions of dollars to support the stock price by buying shares in the market. Some market participants said that the underwriters had to absorb mountains of stock to defend the $38 level and keep the market from dipping below it.”

Reuters quoted sources saying the underwriter tapped into a 63 million share over-allotment option, or greenshoe. “As an indication of the cost, had Morgan Stanley bought all of the shares traded around $38 in the final 20 minutes of the day, it would have spent nearly $2 billion. Underwriters are not obligated to prop up a stock on debut, but typically do.”

Morgan Stanley apparently declined to comment. But if we could on its behalf…“LOL”

It’s nice to know the system works.

Ad money moving to mobile

One of the areas where Facebook still has to prove itself is in commercialising mobility. The company’s vast audience is migrating online very aggressively — which is good for Facebook — so long as they can monetise the eyes on the smaller, less ad friendly form factor.

Indeed, Google dominates the small but growing mobile advertising market, according to this HighTable info-graphic on Mashable. Interestingly, the chart pointed out that mobile internet is a slightly more male experience currently (unlike social networking) and that the demographic goat in the snake is the audience between the ages of 25 and 44.

Andrew Birmingham is the CEO of Silicon Gully Investments. Follow him on Twitter @ag_birmingham.

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