For the first time, Facebook is acknowledging what went wrong on IPO day and in the days after its lackluster stock market debut. Facebook's fingers are pointing directly at the Nasdaq Stock Exchange.
In a newly released court motion where some investors are suing Nasdaq, Facebook reveals Nasdaq's software crash caused a huge mess of its IPO.
Nasdaq tech glitches caused a 30-minute delay on May 18. Many traders reported trouble with canceling orders and trading, at times, on the platform. The motion reveals some investors are suing Nasdaq in six class action cases. These lawsuits allege Nasdaq is to blame for causing a lot of uncertainty and investor losses.
"As has been widely reported in the press, the commencement of trading in Facebook shares was delayed as a result of problems with Nasdaq's software systems, which impaired the orderly execution of trades and price levels," the motion states. Facebook's May 18 IPO debut in no way matched the initial excitement for the company's market debut.
The report recognizes that Nasdaq's errors caused confusion and angst among shareholders. In the motion, Facebook mentions "investors suddenly were turning against Facebook" as a direct result of the technical difficulties.
In the days after the IPO, Nasdaq apologized for the errors. Facebook believes these public reports further hurt the social network's chances in the stock market.
"Commentators have stated that Nasdaq's announcement caused a rash of stock sales that again drove down the price of Facebook shares," the motion states.
The motion, which comes a month after its IPO, Facebook and its lead underwriters Morgan Stanley, J.P. Morgan and Goldman Sachs filed the motion in Federal District Court to consolidate 40+ shareholder lawsuits, according to the initial The New York Times report.
Facebook requests all lawsuits be transferred to the Southern District of New York to streamline the proceedings. Facebook's primary law firms in IPO-related dealings are Willkie Farr & Gallagher LLP and Kirkland & Ellis LLP.
In this report, the company lays out its defense. Facebook acknowledges its dealing with analysts prior to May 18.
According to the motion, Facebook shareholders are suing the company, its directors and underwriters "to challenge certain disclosures in advance of Facebook's IPO." Individuals allege Facebook misinformed them about risk factors pertaining to the giant social network.
Facebook alleges it followed "customary practice." The report states the company certainly did disclose a trend that could hurt its stock forecast. The company reports it made an amendment to its S-1 filing for its IPO on May 9, acknowledging the growth users on the platform was "outpacing" the number of ads reach its 901+ million users. Despite this, analysts shared "forward-looking forecasts" with investors.
"The May 9 Amendment ascribed that trend to the increased usage of Facebook on mobile devices, in which display advertising was limited at the time, as well as certain product changes that affected the volume of advertising that could be displayed," the motion states. "As is customary, and like the original S-1, the May 9
Amendment did not include forward-looking projections."
The report available for view on Dealbook.
Image courtesy of iStockphoto, blackred
Bonus: Facebook's Road to IPO
Facebook launches with humble beginnings that most people have seen dramatized in The Social Network by now. It was a small social site backed by only a little money, and limited just to the undergrads at Harvard. Right out of the gate, Facebook turned down offers from an unknown investor and Friendster, each offering $10 million. This was, of course, when the company was still called TheFacebook.
Image courtesy of Flickr.
Facebook became more legitimized as it moved into more colleges, and then expanded to the public. Microsoft signed a large advertising deal with Facebook, an event that began a long, positive relationship between the two companies.
Just a month later, Yahoo made a $1 billion offer to buy Facebook, but it was rebuffed after Yahoo's stock dropped and the company had to lower to $800 million.
Image courtesy Ludovic Toinel; Flickr.
In an interview with 60 Minutes in January, Mark Zuckerberg said there was no chance of a Facebook IPO that year. In August, Facebook gave itself a valuation of $4 billion, then began letting fully vested employees sell 20% of their stock based on that valuation.
Image courtesy of 60 Minutes.
Facebook gets $200 million investment from Russian Digital Sky, who bought 1.96% of the company with that. That investment raised Facebook's valuation to $10 billion.
Two other estimates of wealth came out later in 2009 that lowered Facebook's valuation, probably as more terms of the deal with Digital Sky became clear.
Image courtesy dborman; Flickr.
Zuckerberg is still coy about an IPO, saying there is "no rush," and proving that Facebook doesn't need the money.
Image courtesy of JD Lasica; Flickr.
Trading on secondary markets suggests Facebook is the third most valuable web company in the United States. As private investors sold their stakes, valuations of the company soared as high as $56 billion.
Image courtesy Dan Farber; Flickr.
Goldman Sachs and Digital Sky Technologies drop a massive $500 million cash infusion into Facebook, pushing its value upwards of $50 billion. According to USA Today, that valuation exceeds companies like eBay and Nike.
Facebook also launches an $1.5 billion equity offering through Goldman Sachs, letting some private investors buy a piece of Facebook.
Image courtesy of AMagill; Flickr.
Reports circulate that Facebook's IPO could exceed $100 billion, and that it might go public during the first quarter of 2012.
Image courtesy of Andrew Feinberg; Flickr.
Facebook halted trading of its shares in secondary markets for three days starting Jan. 25, a possible indicator the company's long-awaited IPO is coming soon.
The signs were correct, as Facebook announced its IPO on Feb. 1, ending the stream of speculation.
Image courtesy J. Fudyama-Powers; Flickr.
Facebook announced it was purchasing popular photo-sharing service Instagram for $1 billion in April. The deal was reportedly brokered by Zuckerberg himself, and was a major acquisition for the company.
Image courtesy of iStockphoto, sd619
Facebook is set to go public May 18, and the IPO could raise $90 to $104 billion. No one can be sure until trading closes though.
Image modified, courtesy Robert Scoble, Flickr.
Facebook launches with humble beginnings that most people have seen dramatized in The Social Network by now. It was a small social site backed by only a little money, and limited just to the undergrads at Harvard. Right out of the gate, Facebook turned down offers from an unknown investor and Friendster, each offering $10 million. This was, of course, when the company was still called TheFacebook.
Image courtesy of Flickr.
By 2005, "TheFacebook" was becoming more and more interesting to potential investors. They waved off bids from the likes of NBC, The Washington Post Group, and two separate attempts from both MySpace and Viacom/MTV.
Image courtesy of wwwes; Flickr.
Facebook became more legitimized as it moved into more colleges, and then expanded to the public. Microsoft signed a large advertising deal with Facebook, an event that began a long, positive relationship between the two companies.
Just a month later, Yahoo made a $1 billion offer to buy Facebook, but it was rebuffed after Yahoo's stock dropped and the company had to lower to $800 million.
Image courtesy Ludovic Toinel; Flickr.
After a lucrative advertising relationship, Microsoft invests heavily in Facebook, putting in $240 million for 1.6% stake in the company. This raised Facebook's estimated worth to $15 billion, after only three years of existence. Despite this, Zuckerberg said the possibility of an IPO is "years out."
Image courtesy of iStockphoto, michalPuchala
In an interview with 60 Minutes in January, Mark Zuckerberg said there was no chance of a Facebook IPO that year. In August, Facebook gave itself a valuation of $4 billion, then began letting fully vested employees sell 20% of their stock based on that valuation.
Image courtesy of 60 Minutes.
Facebook gets $200 million investment from Russian Digital Sky, who bought 1.96% of the company with that. That investment raised Facebook's valuation to $10 billion.
Two other estimates of wealth came out later in 2009 that lowered Facebook's valuation, probably as more terms of the deal with Digital Sky became clear.
Image courtesy dborman; Flickr.
Zuckerberg is still coy about an IPO, saying there is "no rush," and proving that Facebook doesn't need the money.
Image courtesy of JD Lasica; Flickr.
Trading on secondary markets suggests Facebook is the third most valuable web company in the United States. As private investors sold their stakes, valuations of the company soared as high as $56 billion.
Image courtesy Dan Farber; Flickr.
Goldman Sachs and Digital Sky Technologies drop a massive $500 million cash infusion into Facebook, pushing its value upwards of $50 billion. According to USA Today, that valuation exceeds companies like eBay and Nike.
Facebook also launches an $1.5 billion equity offering through Goldman Sachs, letting some private investors buy a piece of Facebook.
Image courtesy of AMagill; Flickr.
Reports circulate that Facebook's IPO could exceed $100 billion, and that it might go public during the first quarter of 2012.
Image courtesy of Andrew Feinberg; Flickr.
Facebook halted trading of its shares in secondary markets for three days starting Jan. 25, a possible indicator the company's long-awaited IPO is coming soon.
The signs were correct, as Facebook announced its IPO on Feb. 1, ending the stream of speculation.
Image courtesy J. Fudyama-Powers; Flickr.
Facebook announced it was purchasing popular photo-sharing service Instagram for $1 billion in April. The deal was reportedly brokered by Zuckerberg himself, and was a major acquisition for the company.
Image courtesy of iStockphoto, sd619
Facebook is set to go public May 18, and the IPO could raise $90 to $104 billion. No one can be sure until trading closes though.
Image modified, courtesy Robert Scoble, Flickr.
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