Posts Tagged Facebook
What will happen to your Facebook account when you die? Facebook has been giving it some thought, and it’s come up with what it hopes is a better way to deal with a sensitive issue.
When a Facebook user dies, the person’s mourners can ask Facebook to memorialize the account. Until now, if an account was memorialized its visibility was restricted to friends only.
“This meant that people could no longer see the account or any of its content unless they were Facebook friends with the person who passed away,” Facebook said in a post explaining the changes.
But starting Friday, memorialized accounts will be left as they are, so that posts are visible to whomever the user intended.
With the changes, Facebook is trying to strike a better balance between acknowledging the “wishes and legacy” of the deceased and serving the wishes of their loved ones.
“We are respecting the choices a person made in life while giving their extended community of family and friends ongoing visibility to the same content they could always see,” Facebook said.
Only memorialized accounts affected
The changes apply only to memorialized accounts, and while Facebook knows a lot about its users, there are limits. The company only knows a user has died if it is reported to them, a spokesperson said.
The change shows Facebook devoting serious thought to a relatively new question: what to do with a person’s virtual identity when they cease to exist in real life? It’s a question other social media companies face as their usage grows, and as people post ever more personal information about their lives.
Seeing value in that information, other companies have sprung up to memorialize the dead, sometimes in curious ways. One site, Eterni.me, collects and processes a deceased person’s personal information and uses it to create an avatar that their loved ones can chat with.
“It’s like a Skype chat from the past,” the company explains on its website.
LifeStory.com, currently in beta, lets mourners add photos, text, videos and other content to create a profile of a person who died.
Facebook will continue to think about how it should best handle the issue.
“Changes like this are part of a larger, ongoing effort to help people when they face difficult challenges like bereavement on Facebook,” the company said.
Posted by: Steven Maimes, The Trust Advisor
Among wealth-management firms, Balentine’s presence on Facebook isn’t at all typical.
The firm’s “wall” is crowded with news and insights from staffers, including messages from industry conferences, summer-reading recommendations and descriptions of kids’ baseball games.
It looks, in other words, like the Facebook page of an outgoing and intelligent person. And that’s exactly what the firm has in mind.
“People don’t go to Facebook to look up mutual-fund performance,” says Joe Stallings, communications chief at Atlanta-based Balentine, which manages about $1.5 billion. “We use it to let people know that we’re people with families who like to share things.”
That’s how Facebook and other social media can help firms build positive brand awareness–and do it at a safe distance from compliance obstacles, according to Mr. Stallings.
Mr. Stallings’s background, somewhat unusual for a wealth manager, has perhaps given him a sharper sense of how to use social media. While he began his career in financial service 20 years ago, he spent most of the past 13 years as a producer with Electronic Arts Inc. (EA), one of the world’s biggest computer-game companies.
“He’s absolutely right about the power of social media to put more depth on a firm’s brand and personality,” says Derek Brown, head of content at Jennifer Connelly Public Relations in Parsippany, N.J. “It shows that more advisers should be looking outside their industry for marketing ideas.”
Mr. Brown has shown his own talent at using social media for marketing financial advisers, helping JCPR shape an entertaining YouTube spot for wealth-management firm HighTower that ended up going viral.
For the moment, most financial firms seem frightened of social media–even though the Securities and Exchange Commission recently made it clear that regulators view social-media communications as they do any other type of electronic publishing.
To be compliant, a company–a registered investment adviser or broker-dealer–has to have approved the “profile” page. The back-and-forth chatter inherent to social media such as Twitter and Facebook isn’t subject to prior compliance-department approval, but it is subject to common sense. So don’t make performance guarantees, don’t make specific investment recommendations, and don’t post testimonials. On the “do” side, post a disclaimer if outsiders can chime in, and make sure every scrap and utterance is archived.
In a recent examination of seven independent firms’ public Facebook pages, picked at random, Dow Jones Newswires found that none encouraged interaction. Two looked like placeholders, with no profile or identifying information other than the firm’s name. The others featured only a company name and contact information.
To be successful with social-media brand building, Mr. Stallings says it helps to understand what brand building means–and how much time and money it warrants. “Branding is about the immediate associations people make with a company, but it’s not about getting referrals or new business, so we don’t spend much time on it and really no money,” he says.
It is also helpful to grasp the nuances of social-media types. While Facebook works for touchy-feely branding, Twitter is better for “asserting thought leadership” through short statements linked to economic analysis and other compliant content, he says.
Mr. Stallings doesn’t claim that Balentine has social media all figured out, however. “All we’ve got are anecdotal insights; people saying it’s refreshing we’re not talking about investments and products and services–and of course it’s nice when the same people who told us we didn’t need to be on Facebook in 2010 call now to ask for help with their own social-media plans,” he says.
- By Thomas Coyle
Posted by Steven Maimes, The Trust Advisor
Claims by four of Wall Street’s main market makers against Nasdaq over Facebook’s botched IPO are likely to exceed $100 million, as they and other traders continue to deal with thousands of problems with customer orders.
A technical glitch delayed the social networking company’s market debut by 30 minutes on Friday and many client orders were delayed, giving some investors and traders significant losses as the stock price dropped. The exchange operator is facing lawsuits from investors and threats of legal action from brokers.
Four of the top market makers in the Facebook IPO — Knight Capital, Citadel Securities, UBS AG and Citi’s Automated Trading Desk — collectively have probably lost more than $100 million from problems arising from the deal, said a senior executive at one of the firms.
Knight and Citadel are each claiming losses of $30 million to $35 million, potentially overwhelming a $13 million fund the exchange set up to deal with potential claims.
Nasdaq also has to contend with the outside prospect that it could lose the Facebook listing entirely after having just obtained it.
Facebook shares ended regular trading on Thursday up 3.2 percent at $33.03, about $5 short of their offering price. Action on the stock, however, has essentially become secondary to the fallout from the IPO — its price, its size, its execution and questions about selective disclosure of its financial prospects.
Regulators including the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority and Massachusetts Secretary of the Commonwealth William Galvin are now looking into how the IPO was handled. The U.S. Senate Banking Committee is also reviewing the matter.
BROKERS UP IN ARMS
Advisers familiar with the situation said many investors are now finding out, nearly a week after the fact, that their orders were not executed at the prices they thought.
Fidelity, in a statement, said it was working with regulators and market makers on its clients’ issues “and we will continue to do so until we are confident that Nasdaq has done everything it can to mitigate the impact to our customers.”
Morgan Stanley is also still tending to trade orders placed by brokerage customers on Friday, two people familiar with the situation said. Nasdaq has said all orders were returned by 1:50 p.m. EDT last Friday, but a Morgan Stanley Smith Barney source said it did not get trade information in a “systemic, orderly way.”
Late Thursday, the company held a call with its brokers and told them adjustments would be made to thousands of trades so that no limit orders would be filled at more than $43 a share for stock from the IPO day, a person familiar with the call said.
While brokerages may have received confirmation of trades made on Friday, many were still handling customer disputes over what price they received on the trades, officials said.
The question is “who is going to eat the cost” of compensating those investors, said Alan Haft, a financial adviser with California-based Kings Point Capital LLC, which has $200 million in assets.
One prominent plaintiffs lawyer said what happened with Facebook was reminiscent of the dot-com bubble.
“This is just another spin on the same game of unfair treatment of individual investors,” said Stanley Bernstein of Bernstein Liebhard. He chaired the plaintiffs’ committee in an IPO class-action suit challenging the role of investment banks in more than 300 IPOs between 1998 and 2000. The litigation ended in a $586 million settlement in favor of the plaintiffs.
MARKET MAKERS LOOM
The claims by market makers Knight and Citadel could end up dwarfing some of the brokerage issues, though.
“They are certainly facing the specter of some significant lawsuits if this pool is not enough,” a source familiar with Knight’s situation said of the Nasdaq claims pool.
Citadel has sent its losses to Nasdaq for potential compensation, a source familiar with the matter said. Citadel’s hedge fund was not affected.
The head of trading at Instinet said it still had no idea when Nasdaq would respond to requests for accommodation — essentially, compensation for the order problems — or if those requests would be honored.
“Were gonna be looking at a loss on our books” if Nasdaq does not honor the requests, Mark Turner said. “We basically made most of our clients whole because Nasdaq told us to go through the process and file for accommodation. If Nasdaq does not accommodate us we’re going to end up taking a loss.”
“I don’t know that I want to put a dollar amount on that but it’s not nearly as significant as Knight’s ($30-$35 million),” he said.
Citadel and Knight, as market makers to the Nasdaq, honor their clients’ buy, sell and cancellation orders. The orders are supposed to be processed by the exchange within milliseconds, but there was a nearly two-hour delay in processing Facebook orders at the Nasdaq.
During that time, market makers had no idea where their orders stood. And in reality, the price clients bought or sold at was sometimes different than the price they actually got.
For example, Facebook shares began trading with an opening cross price – the first price at which those not in on the IPO could buy or sell – of $42 per share. If an order to sell 10,000 shares at $42 went in at that time, but wasn’t filled until later in the day when shares were trading at around $39, a market maker like Citadel or Knight would make up the difference – in this case, at a cost of $30,000.
FEWER PROBLEMS ELSEWHERE
Several analysts who cover exchanges said Nasdaq’s legal liability should be limited, though. According to the analysts, securities rules give Nasdaq wide discretion in determining what, if any, compensation it should pay to customers who claim that they suffered losses due to trading execution.
Under exchange rules, Nasdaq’s liability regarding client losses from certain trading issues is limited to $3 million a month. Market makers will be arguing that Nasdaq was so grossly negligent that its actions during the IPO opening override the limits, said a source with knowledge of Knight’s situation.
Other firms said they did not have similar problems to those of Knight, raising questions about the scope of the losses.
“The problems were where people were trying to cancel orders; we didn’t have that,” said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. “Because we didn’t have a problem doesn’t mean there weren’t problems.”
E*Trade Financial Corp said its market making operations realized losses of “well under a million dollars.”
Charles Schwab Corp had a “small number” of the “tens of thousands of clients” who traded Facebook whose issues still have not been resolved, a spokesman said. “Each one requires some analysis to resolve, which can be time consuming.”
Shares of Nasdaq fell 1 cent to $21.80 on Thursday. As of Thursday’s close the stock was down 5.2 percent from its last close before the Facebook debacle. Over the same period NYSE Euronext is down just 0.1 percent.
The slide in the shares is adding to the pressure on Nasdaq Chief Executive Robert Greifeld, who defended the exchange’s performance at its annual meeting last Tuesday.
Source: Huffington Post
Posted by Steven Maimes, The Trust Advisor
Rush Limbaugh praised Eduardo Saverin, the Facebook co-founder who has been accused of attempting to dodge millions of dollars in taxes, for having business savvy on his Friday show.
Saverin recently came under fire for renouncing his American citizenship, and relocating to Singapore — a move that would reportedly allow him to avoid paying $67 million in taxes.
Saverin, who co-founded Facebook with Mark Zuckerberg at Harvard, hit back at the allegations, maintaining that his decision was based on his interest in living and working in Singapore. He stated that he intends to pay taxes on all his earnings as an American citizen.
Even so, Limbaugh defended Saverin on Friday. “If it’s a more favorable tax haven that you can find elsewhere and you go there, why is it automatically that you are unpatriotic?” the radio host said. “Why is it automatically that you are a coward, that you are not paying your fair share? It’s this whole class envy thing rearing its head again.”
Limbaugh argued that Saverin was only reacting to President Obama’s tax policies by leaving the U.S. He dismissed the entrepreneur’s critics, telling listeners that he moved to avoid paying higher taxes, too.
“I left New York state for the same reason,” he said. “Now, I didn’t have to renounce citizenship, but I left New York state for the same reason. I moved to a state with no state income tax.”
Source: Huffington Post
Posted by Steven Maimes, The Trust Advisor
Eduardo Saverin, one of the founders of Facebook, officially defriended the United States in September, giving up his American citizenship for the more tax-friendly residency status of Singapore.
Mr. Saverin, who was born in Brazil and has lived in Singapore since 2010, plans to remain in the Asian island nation indefinitely. Singapore has a maximum personal income tax rate of 20 percent and no taxes on capital gains. He gained American citizenship in 1998.
A spokesman for Mr. Saverin insisted his client did not renounce his citizenship for financial reasons. “I have worked with him for over a year, and that never came up,” said Tom Goodman, the spokesman. “Obviously, it was a big decision, but he’s making all these investments in Europe, Asia and the U.S. It just seemed a lot simpler.”
He declined to say exactly what simplifications the impending billionaire would enjoy, other than the financial ones. The revelation of the renunciation, published by the State Department at the end of April and reported by Bloomberg News earlier on Friday, comes just days before Facebook is expected to go public.
The decision was in fact made several months ago, however, Mr. Goodman said. “Everyone is trying to tie this to the I.P.O. and taxes,” he said. “It was never about that.”
Mr. Saverin’s loss of citizenship in September 2011 makes it likely that the process was initiated sometime around last May, according to a person familiar with the situation. People leaving American citizenship under such circumstances typically pay an “exit tax,” which is a final bill based on all assets.
As Mr. Saverin’s holdings were primarily shares in a prepublic start-up company, the valuation of those assets was very likely the product of a significant negotiation. In a financing round in January 2011, Facebook was valued at about $50 billion, a little more than half what it is expected to be worth after next week’s initial public offering of stock.
Mr. Saverin, 30, co-founded Facebook while at Harvard with Mark Zuckerberg, Dustin Moskovitz and Chris Hughes, all of whom remain United States citizens. At one time Mr. Saverin owned about 34 percent of the company, but his shares were severely diluted during several financing rounds, leading to a lawsuit that was settled out of court with undisclosed terms. He now owns less than 5 percent of Facebook, but he is expected to be worth over $3.5 billion after the stock offering. He has reportedly sold over $250 million of Facebook stock ahead of the offering.
Among Mr. Saverin’s other investments are Anideo, a Singapore maker of a mobile video application; Jumio, an American company that processes payments based on image recognition; and Shopsavvy, an American maker of software used for comparison shopping.
Posted by Steven Maimes, The Trust Advisor
Facebook Inc. pulled back the curtain on how much it thinks it is worth, targeting a valuation as rich as $96 billion in what would be a record debut for an American company.
The filing starts the clock for Facebook’s executives to persuade investors ahead of a scheduled May 18 initial public offering that the social network deserves such a lofty price. Eight-year-old Facebook would become the most valuable U.S. technology company at the time of an IPO, exceeding Google Inc.’s $23 billion valuation in 2004.
At nearly $100 billion, it would also rival the current market values of more established companies including Amazon.com Inc. and McDonald’s Corp., and longtime tech giants like Hewlett-PackardCo., despite having a fraction of the revenue—or profit.
Currently, the largest valuation for a U.S. company at the time of an IPO was United Parcel Service, in 1999, at $60.2 billion, according to Dealogic.
Facebook’s IPO will be a watershed moment for Silicon Valley, spawning a new generation of millionaires, and a handful of billionaires, including founder and Chief Executive Mark Zuckerberg, whose stake is worth as much as $18.7 billion. It will also stand out even among the wave of high-profile Internet IPOs in the past year from companies such as LinkedIn Corp. and Zynga Inc.
But while the social network is growing rapidly—more than 900 million people now use the site—there are questions whether its trajectory is slowing. Its revenue in the latest quarter rose 45% from a year ago, but fell 6% from the previous three months.
Among Facebook’s challenges will be convincing skeptical marketers that ads on its site lead to people buying products. In addition, Facebook lags in the fast-growing mobile market, where Google has gained significant influence with its Android software. And Facebook has little presence in China, home to the world’s largest population of Internet users.
“The bigger issue [with Facebook] is the core business,” said Morningstar analyst Rick Summer. “There’s still no good understanding for what advertisers are paying for.”
A lot is also riding on investors who bought into Facebook at outsize valuations, believing the company would continue its rapid growth. Facebook said Thursday it is targeting an initial stock price of $28 to $35. Some investors had expected an even higher value and had earlier this year bid up Facebook’s stock on private-company stock exchanges like SharesPost, where the social network’s shares last cleared at more than $44.
If Facebook ends up going public at the lower end of its price range—suggesting a valuation of $77 billion—that would mean an immediate loss for investors like Kevin Landis of San Jose, Calif., tech investment fund Firsthand Capital. Mr. Landis bought shares of Facebook on the secondary market for $31 to $32 a share over the past year and agreed not to sell the shares for six months after the IPO.
“I’ve been surprised before, but I’ll be surprised again if it ends up pricing at that low end of that range,” said Mr. Landis. He adds he isn’t worried yet, partly because the low range may be a tactic to build excitement for the IPO.
Facebook will narrow down a specific price before its first day of trading on May 18, by which time investor interest could cause bankers to raise the price even higher.
With the pricing, Facebook is anticipated to raise as much as $13.6 billion, above earlier expectations of $10 billion. In a regulatory filing, Facebook said the company would seek to sell 337.4 million shares, with about half of those being sold by founders, employees and investors.
The only U.S. issuers that have raised more money in an IPO were Visa Inc.at $19.7 billion in 2008 and General Motors Co. at $18.1 billion in 2010.
Mr. Zuckerberg, who founded Facebook in his Harvard University dorm room in 2004, is selling 30.2 million shares in the offering that could pocket him over $1 billion. Facebook says he is selling to pay taxes on his stake in the company. He would be left with as much as $17.6 billion worth of shares. Mr. Zuckerberg will also control approximately 57.3% of the voting power of Facebook’s outstanding stock following the offering.
Chris Baggini, a fund manager for the Berwyn, Penn.-based Turner Investment Partners, said he plans to buy stock in the Facebook IPO and thinks even if the company prices on the high end of its range, it would be a discount. He anticipates Facebook will be worth $200 billion within four years.
Second Life: Eduardo Saverin
“We already have a business model out there that’s similar to what their business model is going to look like and that’s Google,” said Mr. Baggini, who calls Facebook’s business “incredible.”
Others were more cautious. To sustain Facebook’s valuation, Jed Williams, an analyst with BIA Kelsey, said the company would need to grow revenue at 41% each year in the next five years.
Morningstar’s Mr. Summer said the only way to justify even the low end of Facebook’s valuation would require the company to make $40 billion in revenue within the next six to seven years, while maintaining the same profit margins. Facebook’s revenue in 2011 was $3.7 billion and profit margin was 27%.
The company will also need to expand into other areas like e-commerce or payments in order to support its valuation, analysts said. Right now, Facebook’s payments business is limited to social game companies, with Zynga making the bulk of those payments.
Facebook’s ad business, which accounted for 85% of the company’s total revenue last year, has been tricky as the social network has struggled to balance the needs of advertisers, who want more room for display ads on the site, while trying to maintain the quality of the experience for users, who dislike ads.
Facebook is also trying to find new ways for advertisers to cough up big bucks, since much of the advertising on the site can be done free through brand pages that accumulate fans. In March, Facebook made its biggest push to get advertisers to pay through a product called “Reach Generator,” which helps advertisers reach 75% of their fans on the site.
Facebook also has limited ways to make money off its mobile app, despite more than half of its 900 million users accessing the site through the app. Facebook also has limited mobile advertising. Last month, however, the social network agreed to pay $1 billion to acquire mobile photo-sharing app Instagram.
Hussein Fazal, CEO of Facebook ad company Adparlor Inc., said the amount advertisers pay for every 1,000 people who view an ad is relatively low on Facebook, at 25 cents to 30 cents. Mr. Fazal said it will be a challenge for Facebook to increase those rates, but they could increase the volume of ads if the company expands its ads into areas like mobile, he said.
Meanwhile, Facebook has said international markets are essential sources for significant growth. But the social network is mostly blocked in China, leaving hundreds of millions of Internet users out of reach.
Facebook is likely about two weeks away from a final pricing and the first trading of its shares on the Nasdaq Stock Market, under the symbol FB. The “roadshow,” where the company pitches its shares to investors, is expected to begin Monday with group lunch meetings for investors planned in New York, Boston and Palo Alto, Calif., hotels.
Facebook Chief Operating Officer Sheryl Sandberg and Chief Financial Officer David Ebersman will handle most of the investor meetings on the roadshow, said people familiar with the matter. Mr. Zuckerberg will make just a few appearances, they said.
On Thursday, however, Mr. Zuckerberg appeared in a video for investors. Wearing jeans and a T-shirt, the 27-year-old discussed why he decided to start the social network.
“I grew up with the Internet, when I was in middle school I was using search engines like Google and Yahoo,” he said. “I thought it was the most amazing thing. Now you have access to all this information. The thing that was missing was just people.”
Morgan Stanley, J.P. Morgan Chase & Co. and Goldman Sachs Group Inc. are the lead underwriters. Bank of America Merrill Lynch, Barclays PLC, Allen & Co., Citigroup Inc., Credit Suisse Group AG and Deutsche Bank Securities are the other bookrunners on the IPO, in addition to which 24 firms are co-managers.
Posted by Steven Maimes, The Trust Advisor
Facebook’s $5 billion IPO won’t just impact its thousands of employees and corporate culture. The effects will be much more far reaching, touching hundreds of companies that rely on the platform — many of which are already benefiting from buzz surrounding the year’s most talked about public offering.
Here are four of them:
Social gaming firm Zynga is responsible for 12% of Facebook’s revenue through its titles like FarmVille and Mafia Wars. This accounted for roughly $444 million last year, with Facebook’s revenue totaling $3.7 billion. Facebook makes money through Zynga by taking a 30% cut of each virtual good transaction, as well as through advertising.
There are both risks and rewards to Facebook’s relationship with Zynga. The social network’s revenue could be adversely affected if Zynga decides not to feature its games on the Facebook platform. Zynga has recently tried to shift from what some have criticized as its over-reliance on Facebook to mobile-based games.
Shares of Zynga were rising 15.6% in late morning trading on Thursday to $12.27.
2. Fusion.io (FIO)
Enterprise storage company Fusion.io counts Facebook as one of its largest customers. The company’s technology powers about 80% of Facebook’s servers, and the social network comprised nearly half of its revenue last year.
But Fusion.io also warned in its own S-1 filing last year that revenue from Facebook will “decline significantly” during the three months ending June 30, 2011, as the company finishes rolling out its infrastructure.
Apple (AAPL) is another large customer for Fusion.io, not surprising considering the company’s chief scientist is Apple co-founder Steve Wozniak.
Shares of Fusion.io were increasing 0.9% to $22.46 on Thursday.
3. Snap Interactive (STVI)
Snap Interactive makes applications for Facebook’s platform, such as social dating and location-based programs. Their core data app, called Are You Interested? integrates with a users’ Facebook profile, while WhoIsNear is a Foursquare-like geo-location app.
The only publicly traded Facebook app developer besides Zynga, Snap recently hired a new CFO in November who is a former exec from Warner Music.
4. Digital Realty Trust (DLR)
Facebook has leased nearly all of its data center space from several providers including Digital Realty Trust. The social network spends roughly $30 million a year on leases with DLR, but could rely less on the company in the future as it builds its own data centers.
Posted by Steven Maimes, The Trust Advisor.
Wealthy investors aren’t clamoring for a piece of Facebook Inc.’s initial public offering because some own the stock through private transactions while others shy away from risky technology deals, according to advisers.
“It’s kind of the late arrivals who get excited around the time of the IPO,” said Jason Thomas, chief investment officer of Aspiriant, whose clients on average have about $10 million under management with the Los Angeles-based firm. “Our clients remember the tech bubble very well, and are appropriately skeptical of being the last money in.”
Facebook, the world’s biggest social-networking service, filed yesterday to raise as much as $5 billion in the largest Internet IPO. Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., Bank of America Corp., Barclays Plc and Allen & Co. were hired to handle the deal for the Menlo Park, California- based company. The $5 billion figure is a placeholder used to calculate fees and may change.
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.
Buying the Hype
Ed Reinhart, 41, holds about 5 percent to 10 percent of his personal portfolio in Facebook after buying shares in 2010 through SharesPost Inc., a secondary market for private-company stock. He said he likes the company’s revenue-growth prospects and isn’t looking to increase his position in the initial offering.
“You don’t want to buy into the hype,” said Reinhart, who lives in Yakima, Washington, and is a managing partner for Capital Advisors Wealth Management, which works with institutional retirement plans. “I think it would be very wise for individual investors to stay back and let some of this steam escape, and see where all of this shakes out.”
SharesPost and SecondMarket Holdings Inc. facilitate transactions in private-company stock for accredited investors. That generally means individuals with assets of greater than $1 million, excluding a primary residence, or those earning more than $200,000 annually. SharesPost has offered transactions in Facebook shares since 2009.
Investors holding private-company stock at the time of an IPO generally are not permitted to sell their holdings for a certain period of time after the offering, generally as long as 180 days, according to Tim Sullivan, managing director of SharesPost.
Goldman Sachs in January 2011 halted a planned offering of Facebook shares to U.S. investors on concerns that media attention on the deal could violate rules limiting the marketing of private securities, and instead restricted the offering to non-U.S. investors. That month Facebook said it raised $1.5 billion from Goldman Sachs and related funds along with Digital Sky Technologies.
Some clients of Constellation Wealth Advisors LLC have invested in Facebook through venture-capital funds or the secondary market, said David Arizini, a managing director and partner at the firm in Menlo Park, California, whose investors generally have at least $10 million in investable assets.
Signature, which oversees about $2.1 billion for families, has been invested in private equity and hedge funds that have owned Facebook for a few years, said Andrew Gorczyk, a portfolio manager for the Norfolk, Virginia-based firm. He declined to name the specific firms or funds.
Most clients haven’t expressed an interest in Facebook, said John Jennings, senior vice president of St. Louis Trust Co., a multifamily office based in St. Louis, which oversees about $3 billion for clients with an average of $75 million under management.
“It’s more exciting than having another muni bond in your portfolio,” Jennings said. “But the way we invest, we’re not going to load up on Facebook and try to make a quick buck.”
While some companies go public and do extremely well, the “odds are against you,” as some firms start trading at a high price point and then underperform or fail, said Scott Schermerhorn, chief investment officer at Granite Investment Advisors in Concord, New Hampshire, which manages about $500 million.
Shares of Groupon Inc. gained about 31 percent in their first day of trading after the firm’s November IPO, and have since fallen about 22 percent as of Jan. 31, according to data compiled by Bloomberg.
Stocks of companies that held U.S. IPOs in 2011 lost about 1.1 percent on average from their offerings through Jan. 30, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index returned about 5.1 percent over the year through Jan. 30, including reinvestment of dividends.
Shares of Google Inc. jumped 18 percent on their first day of trading after the company went public in August 2004 and have risen more than 500 percent since, Bloomberg data show.
Many investors may already have exposure to Facebook even if they haven’t deliberately acquired shares through the secondary market or a private fund. About 50 mutual funds have reported stakes in the company, according to Chicago-based Morningstar Inc.
Funds managed by T. Rowe Price Group Inc. held about $408 million in Facebook at the end of December, according to spokesman Robert Benjamin. Morgan Stanley Institutional Fund Opportunity Portfolio held about 3.7 percent of assets in Facebook as of December, making it the fund’s ninth largest holding, according to the Morgan Stanley website.
Fidelity Contrafund held about $87 million in Facebook’s Class B shares in December, according to the fund’s monthly holdings report. That amounts to about a 12 basis-point allocation for the fund, which had assets of about $73 billion in December, according to spokeswoman Sophie Launay. A basis point is 0.01 percentage point.
People who have a broker may be able to ask for shares and the allocation may be determined by how much business they did at that investment banking or brokerage firm, said Todd Morgan, senior managing director at Los Angeles-based Bel Air Investment Advisors, which manages about $6 billion. Investors trying to obtain shares now may not gain access to a large enough allocation to have an impact on their portfolios, he said.
Spokesmen from Morgan Stanley, Goldman Sachs, JPMorgan and Barclays declined to comment on how the firms would allocate any shares of the IPO they receive among customers. A spokeswoman for Allen & Co. didn’t return calls seeking comment.
“We have a systematic approach to IPO allocation that seeks to promote broad participation by investors with a longer- term view,” said Matt Card, a spokesman for Bank of America.
“It is difficult for most investors to access shares at the IPO price,” Kathleen Smith, principal of IPO investment adviser Renaissance Capital LLC, said in an e-mail. “Even the best institutional clients of Wall Street only get a small portion of their order filled at the offering price.”
Interested investors should study Facebook’s financial information in the prospectus, including its growth rate, sales margins and cash on the balance sheet, and wait until the Facebook IPO has begun trading, Smith said. Facebook is considering a valuation of $75 billion to $100 billion, two people with knowledge of the matter said last week.
“People get caught up in the feeding frenzy that surrounds these opportunities,” said Gerri Walsh, vice president of investor education for the Financial Industry Regulatory Authority, the self regulator for the securities industry. “When a potential IPO is highly publicized and well-covered, people think that any way into that deal might be a legitimate way.”
The U.S. Securities and Exchange Commission in November filed an emergency enforcement action to stop what it said was a fraudulent scheme targeting investors trying to gain access to pre-IPO technology companies such as Facebook and Groupon.
Managers of the Praetorian Global Fund falsely claimed that their fund and related entities owned “shares worth tens of millions of dollars in privately held companies that were expected to soon hold an initial public offering,” according to an SEC statement. The individuals claimed that client funds were held in escrow while in fact they were being transferred to the managers’ personal accounts, the SEC said in the statement.
Outbid on Houses
While investors should be aware of the risks of trying to get a piece of the Facebook action this late in the game, their interest is understandable, said Aspiriant’s Thomas.
“Our Silicon Valley clients have been outbid for houses by Google employees often enough,” Thomas said.
Those who do obtain shares at the offering price and sell into an initial jump could face higher tax rates on their profits. Gains on stocks held one year or less generally are taxed at an individual’s ordinary rate, currently as high as 35 percent, while long-term gains usually are taxed at a maximum levy of 15 percent, according to the U.S. Internal Revenue Service.
“Who knows if it’s going to be the next Google,” said Reinhart, the individual investor. “But even if you bought Google in the first year, you’ve still done well.”
Posted by Steven Maimes, The Trust Advisor.