J\Last Friday, just over two years after the IPO of Facebook (FB) in mid-2012, another major tech company, the Chinese internet conglomerate Alibaba (BABA), made its debut on Wall Street. BABA received a warm reception. This is in sharp contrast to the FB experience, which will certainly go down as one of the bigger stock market disasters of the decade (the century?).
The differences, as I see them:
the FB fiasco
1. FB depended on a single lead underwriter, Morgan Stanley (MS).
2. Morgan Stanley was unusual in that it had made a big effort to remain in touch with Silicon Valley after the collapse of the internet bubble in 2001. It seems to me to have believed FB was its last best chance to cash in on more than a decade of visits and phone calls. It also thought there was no follow-on business to be had. Therefore, its tech investment bankers appear to me to have been more concerned about maximizing their fee income on FB than on ensuring that the buyers had even a mildly profitable experience.
3. Subsequent media reports, presumably based in considerable part on information provided by the underwriters, make it clear that the management of FB was obsessed with the idea of not “leaving any money on the table.” The CFO, David Ebersman, seems to have badly misunderstood how the process of going public works–in particular, the negative effect on company morale of a failed IPO. This is very odd, since most often a CFO is brought in precisely because he/she knows how going public works.
4. Shortly before the IPO date, the IPO price was boosted by about 12% and the number of shares on offer was raised by 25%. In other words, at the last-minute the issue size was upped by MS and Ebersman by almost 50%–soaking up a ton of money that would otherwise have been available for buying in the aftermarket. Virtually none of this went to FB; is all went to early investors, and some employees, cashing out.
5. The FB offering was unusually highly reliant on (inexperienced) retail investors. It appears many tried to “game” the IPO by asking for, say, 5x what they wanted to end up with (see my original post on the FB IPO). Imagine their shock when instead of the $50,000 worth of FB they expected, $250,000 worth of stock–and the accompanying bill–plopped into their accounts.
6. Then, of course, the NASDAQ trading computers broke down. This made it impossible to trade, or even to get an accurate quote. In fact, for at least several days, retail sellers didn’t know how many shares they may have bought or sold on the morning of the IPO, or at what price.
BABA is much better, so far
BABA used six lead underwriters, not one–although MS was included among them.
Retail exposure was minimal.
BABA listed on the New York Stock Exchange, avoiding NASDAQ.
BABA did price at about 5% above the high end of the announced range (apparently indications of interest were huge). But the size of the offering wasn’t boosted, meaning plenty of buying power was still left for the aftermarket. BABA was also arguably priced at a discount to comparable Chinese internet firms, while FB was priced at a premium–just as its business was beginning to slow.