Facebook is oversubscribed. No Under-subscribed. No over. No under. Over. Under. Actually: both.

Reuters and Bloomberg are butting heads over just how well the Facebook roadshow is going.

Bloomberg came out first at 9.28 pm with a story saying investors were reluctant to put in their orders after the social media giant said mobile use was going up, but not its ad revenues. The company is on Day 4 of a national roadshow, a ritual for companies selling stock to investors for the first time.

Less than an hour later, Reuters fired back with a quick and dirty story saying, oh-ho, Facebook is oversubscribed.

It’s Chinatown all over again.

IPO orders are notoriously ephemeral. Institutional investors give a list of what they would be likely to buy — called “indications” to the investment bank underwriting the deal. The institutions may say, for example, they would buy 100,000 shares of Facebook at $28-$30; 75,000 at $30.50-32.00/share. All the way up to, say, 5,000 shares at $40. But if a volcano hits a Facebook data center the night before the pricing, all those orders could just disappear. Poof.

So my reading: Before the “profit warning” yesterday, investors were pretty much slobbering all over the deal. Now they aren’t slobbering and may actually be saying, well, I’d pay this much but not that much. So the deal may well be under-subscribed at $100 billion but oversubscribed at $75 billion. The wind blowing through the Facebook deal is the wind of caution. Slobbering, done. Time to sober up.

The other subtext: Investment banks  must now deal with clients who bought Facebook in the private market at prices that won’t translate into an instant killing in the IPO market. As Wall Streets might say, the optics aren’t so good.

In my book The Facebook IPO Primer, I shared five different ways that analysts look at Facebook. One said the company was worth just $30 billion — shockingly low. The top estimates were about $154 billion. When Facebook first announced that it was going public, somehow everyone wrote that it would get priced at $100 billion, even though most analysts thought it was worth closer to $70 billion. I can’t tell you what people had to say about that $30 billion valuation.  It’s hard to imagine Facebook with that small a valuation (and I’d bet Zuckerberg would pull the deal before letting that happen). But if investors are tiptoeing towards $70-$75 billion, well then, that would make it seem as if demand was indeed shifting. Not disappearing. Sobering up.

It’s funny: Facebook has been saying all along that mobile isn’t making money — yet. And everyone knows that users are becoming increasingly mobile. So the announcement Wednesday contained NOTHING new. But it was a wake up call. And now everyone is awake, they’re sharpening their pencils, and getting ready to make some real decisions.

Facebook is planning on launching the IPO on May 18, and hoping to raise about $11 billion.

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One thought on “Facebook is oversubscribed. No Under-subscribed. No over. No under. Over. Under. Actually: both.

  1. Pingback: Friday 7atSeven: billion dollar blunder | Abnormal Returns

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