better days ahead for Facebook(FB)?


I think so.  Insiders appear to be unwilling to sell at the current market price and Wall Street seems to have forgiven FB for what I regard as the less than ethical behavior of the company’s main underwriter during the IPO.

recent trading

Yesterday marked the end of the third–and final–period over which FB employees and early investors had agreed not to sell shares.  Just north or three-quarters of a billion shares were thereby released from lockup.  Wall Street was bracing for the worst.

But only about 50 million shares appeared for sale at 9:30.  Total volume for the full day yesterday was just under 230 million shares, or about 5x normal.  More important, the stock went up 12.6% in a flat market.

As I’m writing this just after midday Friday, FB is up about 6while the S&P 500 is flattish.  Volume is high again, but I read this as professional investors reacting positively to the small percentage of insider shares that were put out for sale and to the strong price action that soon developed.

the IPO, in hindsight

Not Morgan Stanley’s finest hour.

The main underwriter threw gasoline on speculative flames instead of tamping them down.  And NASDAQ’s computers broke down just as it was dawning on individuals dreaming of instant riches that they’d been had.

That was bad enough.  But the really damaging part of the IPO, to my mind, was the way I think the underwriters “spun” the mandated company disclosure in a way that made FB look better than it is.

Any professional investor would take it for granted that Morgan Stanley knew exactly what it was doing.  The real question is whether company management was complicit in this shady process–in which case they couldn’t be trusted and buying the stock could be hazardous to your career.  On the other hand, maybe FB executives were just too inexperienced or naive to understand what was going on.

The price action of the past two days seems to me to be saying portfolio managers and buy-side analysts have decided the latter is the case.

So, two plusses for FB.

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