Despite a market debut which has seen its share price slump 18 percent since its Friday listing, the Facebook IPO has provided an upside for major Russian investors in the world’s largest social media company, analysts told RIA Novosti on Wednesday.
After listing at $38 per share in a $16 billion public offering which valued the whole company at $104 billion, Facebook has taken a hammering in the markets this week. It lost 8.9 percent in Wednesday trade alone, taking it down 18 percent Friday’s opening, against a backdrop of claims its IPO may have been mishandled by lead underwriter, Morgan Stanley, volatile global investor sentiment, and a more widespread perception its market debut had been hyped too far.
The allegations about the information available to investors have prompted a U.S. federal probe into whether specific investors received privileged information ahead of the IPO that should have been shared more widely.
Underwriting banks, led by Morgan Stanley, increased the size of the offer by 25 percent, and priced this at the very top of the proposed $34-$38 range despite cutting revenue growth forecasts when the social network group revised its prospectus, and it has been suggested that JPMorgan and Goldman Sachs analysts alerted clients of Facebook’s lower growth forecasts in the days before its IPO.
Despite the selloff, analysts polled by RIA Novosti said such a fall was not unusual.
RMG Securities analyst, Kseniya Arutyunova, said that the hype surrounding the public debut, the worlds largest this year, had triggered investor expectations that were always going to be hard to meet. Now this was being reversed with the share slump leading to concerns which were also being exaggerated.
“This is an absolutely typical situation when the shares surge above the IPO price in the first hours of trading and then fall. Another thing is that the scope of this fall causes some surprise because the company has demonstrated negative dynamics in the past few days… which is an alarming signal,” she said.
“To my mind, this is because shares go into free float and investors want to see more good news from Facebook to raise their optimistic look at the company. This news background should be quite powerful, considering that investment companies considered Facebook to be overpriced already during the flotation.”
Investcafe analyst Ilya Rachenkov said the situation was standard for any IPO.
“Companies normally start IPOs with their stock overpriced and the fall in share prices below the offer price is a private case and there is nothing extraordinary about that. The story with Facebook is also aggravated by the fact that there was very much anxiety about the flotation, fuelled by the mass media. Besides, lawsuits against Morgan Stanley, the Nasdaq technical failure (at the start of the Facebook IPO) and the overall negative market situation also played their role,” he said.
Rachenkov also said Russian Internet companies Mail.ru Group and DST Global, who are Facebook minority shareholders, will book significant profits from the IPO, despite the subsequent share price tumble.
“As for Mail.ru Group and DST, the Facebook IPO has been advantageous for them. These two companies received large revenues from that,” he said.
According to Kommersant business daily, Mail.ru sold some of its voting stock during the Facebook IPO, reducing its stake from 3.1 percent to just 2.3 percent while Digital Sky Technologies (DST), a Russia-based international investment firm focused solely on the Internet sector, reduced its voting stock from 5.5 percent to 5.2 percent during the Facebook IPO.
“Mail.ru still has Facebook shares on its balance sheet. It is understandable that the price of this share package is falling with these market price fluctuations. But in any case, they have made a good deal by selling part of the Facebook shares. Even if they sell the remaining stock at a reduced price, they will still get good revenues,” Rachenkov added.
RMG Securities analyst Kseniya Arutyunova also highlighted the capacity of the Russian companies to cash out some of their stake at a good price, adding that she was unaware of significant Russian shareholders buying into Facebook as part of the IPO.
“Some investors have been able to monetize their stakes in the process of the IPO. I am speaking about Mail.ru, which has successfully sold part of its share package actually at the highest price. As for other investors, as far as I know, other Russian investors virtually took no part in the IPO and those who wanted to withdraw from the Facebook capital had been able to do so,” she said.
A Mail.ru spokesperson told RIA Novosti that the company, as a Facebook shareholder would not comment on the Facebook market developments while DST was unavailable for comment.
Arutyunova said strategic investors would not yield to panic around Facebook right now, considering that other Internet companies also registered stock price declines.