The early investors made out like kings, but I doubt Facebook's employees are in a cheery mood as they watch their options sink underwater and their vested paper wealth dissipate while waiting for the lockup period to end.

I'd like for someone to explain precisely what Facebook should have done to ensure a big pop. Value the shares at $5? What if their internal projections indicated the company was worth more than that? Picking an artificially low strike price for the options probably would have resulted in people going to jail, not to mention all the employees owing taxes on the difference.

From what I've seen, it was hugely overvalued. Maybe $25-$50 billion, with a share price of $28-$32.

Last minute change to $38+ was suicide.

If you wanted to value it at $25-$50B, the share price would accordingly be $12-$24.

Remember market cap = total shares * price. :)

You assume that the number of shares being offered was static, hence the price drop by half.

More realistically, Facebook should have sold less shares, which would have kept the price at that target. But I guess it couldn't sell less: they had a bucketload of people who wanted to sell, and all the biggest potential buyers had already bought... Lesson learned: don't get talked into secondary market abuse...

Maybe I've had too much coffee so I'm not understanding your comment, but market cap is based on total outstanding shares, whether they were being sold on the market or not. 10 stocks issued total, company's value doesn't inherently change based on whether 5 stocks are sold in public vs 10 vs 1.

Sure I get the supply and demand thing you're trying to articulate, but the reality is that I as an investor am concerned that FB is overvalued at 100B marketcap, whether the shares are sold at $1 or $10000.

...not sure you understand how market cap is calculated. The float (# of shares available to the public) can vary, but the total # of shares, in the absence of a split/new issue/retire, will remain static.

To clearify, it is market cap = outstanding shares * price.

How about a time machine to take all the retail investors back to 1999? Back then everyone just piled in their orders without thinking twice. This attitude is what Wall Street was hoping would return.

Ah, the heady days of VA Linux ...

http://www.nasdaq.com/symbol/gknt/interactive-chart , then click the "Max" button down the bottom ...

I'm skeptical that FB would be higher today if it had IPOd lower.

It would be higher relative to the IPO price.

Among other things, this means that employee options would still be above water. Rather more motivating than underwater options after years of death-march hours.

All employees since 2008-ish have gotten RSUs, not options.

Thanks.

I never checked my FB options package. Largely on account of not receiving one.

Wait, I don't understand this bit. Surely the employees don't have options with a face value of $38, do they?

Two bits.

No, the strike likely isn't 38. But downward valuation on stocks or options decreases their value.

If options were granted (and apparently this isn't the case at FB, see the RSU comment -- restricted stock units), then there would be _some_ strike value. Often shares are granted at some price as well (though it's frequently at some nominal "par" value, typical $0.01).

With options, it's possible for employees to end up with no value at all. In some cases, companies have re-issued "above-water" grants, though this has been frowned on in recent years.

With stock, again, you have the situation of sitting on, say, a few hundred or thousand shares, and watching your paper worth drop from $40k to $20k to .... Now, according to Zuck, that's not cool money, but to your typical Valley engineer, it's still plenty green, and hurts to see it wash away.

Isn't that the fault of the private investors for overvaluing Facebook? Presumably all granted options had a strike based based on the current private valuation, which clearly the public market doesn't agree with (without judgement as to whether the public market is right or wrong).

From what I understand (not an FB employee, but know several) the stock grants in the last ~3 years have been RSUs not options, which at least means they can't be underwater

Yep, but it's still a problem for the company. Facebook has been on a hiring spree, backed by an implicit promise that anyone in before the IPO would be practically guaranteed to make a buck. If the IPO is still a bust by the time the lockup expires in 3-6 months, it's going to be an HR problem. Of course, it depends on how Facebook actually structures its compensation packages. RSU are more popular with most companies these days than stock options, so they may just be looking forward to a smaller payday than worthless options.

> In contrast to the Google IPO in which the stock skyrocketed on the first day and really took off after that. Google may have been able to extract quite a bit from their IPO than they did.

Google priced their shares based on an auction, I'd say it was priced right. It was also much smaller because it wasn't a bunch of insiders trying to dump their shares at an inflated value.

Google sold 19.6M shares, 14.1M of them were from corporate. There were 271M shares in total, so only a very small amount of the company was transferred. In contrast for FB, there are 2.14B total shares and the IPO was for 421.2M of them, a much larger percentage of the company. In addition, insiders made up 241M of those shares sold, which is actually the majority of the IPO.

While this is anecdotal, some ibanking friends told me that alot of the traditional wall street banks 'boycotted' google for going w/ a smaller player who did a non-traditional format (auctions) that threatened their business model and that resulted in lower demand (and lower price) for their shares at IPO than would have otherwise been the case.

another win for the efficient market hypothesis. /s

I assume it was financially healthy for a very small group of people within Facebook. Most of the employees would be on lockdown before they can sell their stocks on the public market, no?

Facebook, the company, got a lot of money out of the IPO, not Facebook's individual employee holdings.

Insiders got even more out of the IPO than the company did.

I am assuming they have to wait 6 months, by then FB will not be worth much compared to their strike price.

3 months - http://blogs.wsj.com/digits/2012/05/24/facebook-lock-up-expi...

At this rate these 3 months will feel very long and they will be pretty much "a worry" for those affected.

It's 6 months for most employees.

The game is not as simple as maximizing the value of just the shares being sold on day 1. Post-IPO, a company's shareholders are largely the same as pre-IPO... the value they achieve for their shares in will be determined over a much longer time frame. Reputation / performance matters.