7 ms·

Why Did Zynga Tank After Facebook IPOed?

84 points by mattobrien 14y ago

deleted 14y ago
[deleted]
redthrowaway 14y ago
Interesting. I wonder what effect trading on Second Market had on FB's IPO. It could well be that people were gobbling up FB stock in expectation of the IPO pop. When that fizzled, they may well have dumped that stock, leading to the later depressed pricing. Now, this is all contingent upon how much stock was being moved on SM, and the blackout period I suspect was in place preventing its trading. Still, I'd be interested in an analysis of SM's impact.
coryl 14y ago
I don't think anyone in the startup/tech world believes in Zynga's ability to be a (public) company that can seriously grow revenues and create sustainable products.
- dmvaldman 14y ago
  Can you explain why?
  - luser001 14y ago
    I'll try: they're sharecroppers (e.g., http://www.tbray.org/ongoing/When/200x/2003/07/12/WebsThePlace http://www.tbray.org/ongoing/When/200x/2003/07/12/WebsThePla...)
dbkbali 14y ago
There is another possibility and that is dealers were desperately trying to maintain facebooks price above the Ipo price, especially given the significant lower fees taken on this Ipo and the greenshoe option. Without this dealer intervention it is possible facebooks price would have correlated more with zynga's price short. The greenshoe option http://en.wikipedia.org/wiki/Greenshoe http://en.wikipedia.org/wiki/Greenshoe could also have something to do with these trading patterns. Given facebooks stock performance this is not positive for future Internet IPOs.
- mikeryan 14y ago
  There is another possibility and that is dealers were desperately trying to maintain facebooks price above the Ipo price, especially given the significant lower fees taken on this Ipo and the greenshoe option. Without this dealer intervention it is possible facebooks price would have correlated more with zynga's price short. um, they said that in the article.
- tatsuke95 14y ago
  This isn't a "possibility", it's the duty of the underwriter.
  - dbkbali 14y ago
    The underwriter has no legal obligation or "duty" to guarantee or support the original issue price. Definitely, they have an economic and business incentive to ensure the price stays above the issue price. Failure to keep the IPO above this price could lead to a loss of credibility with their large institutional buyers and also with the issuer and their participation in future IPOs.
hristov 14y ago
The reason is obvious to me. In fact it is so obvious now that I am kicking myself for not finding a way to make money out of it. It is related to the reasoning proferred by the Atlantic, but it is not exactly it. It is true that Zynga and facebook are very related. And for that reason, it seems to me that a lot of Zynga shareholders were holding Zynga shares not because they want to own Zynga, but because they want to own Facebook and there was no way to buy Facebook on the public markets until today. So a lot of Zynga shareholders were merely holding Zynga as a proxy for Facebook. Once Facebook was offered all those people decided to sell Zynga to buy Facebook. And Zynga tanked accordingly. Now of course you will ask, why did Facebook seem to tank at the same time. If my theory about Zynga was true would that not mean that Facebook should go up as Zynga tanks. Yes, if all other things are equal. But in this case they were not. Facebook went down for a different reason. The reason Facebook went down is the usual immediate post IPO sell-off when a bunch of people that got into the IPO sell their shares immediately to make some quick profit. So yeah, I wish I had thought about that yesterday.
- hristov 14y ago
  To further support my theory, I note that LinkedIn also fell today by 5.6%. This was not a fall as steep as that of Zynga, but of LinkedIn is not as closely intertwined with facebook as Zynga.
  - jarek 14y ago
    GOOG dropped by 3.6%, that's around $7.1B in market cap which is almost half of the entire Facebook offering - do you suppose this was driven by people who really wanted Facebook exposure, too?
    - ArchD 14y ago
      A lot of tech stocks declined today, not just GOOG, though GOOG declined quite a lot. Even (Adobe) ADBE declined by 2.19%. Possible explanation: If you were a big institutional fund manager with a large portfolio, would you put your money in thousands of small-cap companies or a few large-cap companies? When an opportunity like FB arises and you want to get in, what would be the easier way to get the liquidity needed to buy FB? If you don't have very sophisticated trading and portfolio management technology, one of the easiest ways to get the liquidity is to sell the large-caps first, and GOOG could be one of them. Another possible explanation: GOOG and FB are perceived to be enemies/antagonistic. So, when one stock has a positive event (IPO that provides lots of liquidity), the other stock is impacted. This is a psychological explanation. I can't prove it.
deleted 14y ago
[deleted]
panarky 14y ago
We know that Morgan Stanley propped up Facebook's share price to keep it from falling below $38. To prop up the price, Morgan had to buy a truckload of shares. How else would you hedge your exposure to all those Facebook shares than to short Zynga and Google?
- vibrunazo 14y ago
  > We know that Morgan Stanley propped up Facebook's share price to keep it from falling below $38. Why exactly do they wanna do that? If they're artificially holding it up, doesn't that mean they'll lose a lot of money in the next weeks when it goes back to an non-artificial price?
  - panarky 14y ago
    Here's why: "Buyers did not rush into the market to snap up shares of the social networker. And the big Wall Street banks that brought Facebook public scrambled to prevent the stock from collapsing into declines." "The underwriters averted a potential debacle by scooping up shares of the company during the Nasdaq debut. This propped up the stock, keeping it above the $38 offering price through most of the day." “When a deal gets priced and breaks price on the first day, that’s definitely a major embarrassment," said trader Andrew Frankel, co-president of Stuart Frankel & Co. "The practice is pretty standard during IPOs, especially high-profile ones like Facebook. The big banks buy into a wave of selling as a way to prevent their customers from suffering big losses." Source: http://www.latimes.com/business/technology/la-fi-tn-facebook-trading-20120518,0,6622700.story http://www.latimes.com/business/technology/la-fi-tn-facebook...
  - peterjancelis 14y ago
    Such a prop up guarantee is probably part of the underwriting deal these investment banks signed. Morgan Stanley was the lead in this IPO deal.
- thisisstupid 14y ago
  Congratulations for having the only reasonable answer in the entire thread.
ArchD 14y ago
I think this article got many points right, but it failed to mention that ZNGA trading got halted, which could largely explain the semi-recovery of the price. You don't need to invoke the computer algorithms argument to explain that.
Dzidas 14y ago
It looks like pair trading.

84 points by mattobrien 14y ago

deleted 14y ago

[deleted]

Interesting. I wonder what effect trading on Second Market had on FB's IPO. It could well be that people were gobbling up FB stock in expectation of the IPO pop. When that fizzled, they may well have dumped that stock, leading to the later depressed pricing. Now, this is all contingent upon how much stock was being moved on SM, and the blackout period I suspect was in place preventing its trading. Still, I'd be interested in an analysis of SM's impact.

coryl 14y ago

I don't think anyone in the startup/tech world believes in Zynga's ability to be a (public) company that can seriously grow revenues and create sustainable products.

dmvaldman 14y ago
Can you explain why?
- luser001 14y ago
  I'll try: they're sharecroppers (e.g., http://www.tbray.org/ongoing/When/200x/2003/07/12/WebsThePlace http://www.tbray.org/ongoing/When/200x/2003/07/12/WebsThePla...)

dbkbali 14y ago

There is another possibility and that is dealers were desperately trying to maintain facebooks price above the Ipo price, especially given the significant lower fees taken on this Ipo and the greenshoe option. Without this dealer intervention it is possible facebooks price would have correlated more with zynga's price short. The greenshoe option http://en.wikipedia.org/wiki/Greenshoe http://en.wikipedia.org/wiki/Greenshoe could also have something to do with these trading patterns. Given facebooks stock performance this is not positive for future Internet IPOs.

mikeryan 14y ago
There is another possibility and that is dealers were desperately trying to maintain facebooks price above the Ipo price, especially given the significant lower fees taken on this Ipo and the greenshoe option. Without this dealer intervention it is possible facebooks price would have correlated more with zynga's price short. um, they said that in the article.
tatsuke95 14y ago
This isn't a "possibility", it's the duty of the underwriter.
- dbkbali 14y ago
  The underwriter has no legal obligation or "duty" to guarantee or support the original issue price. Definitely, they have an economic and business incentive to ensure the price stays above the issue price. Failure to keep the IPO above this price could lead to a loss of credibility with their large institutional buyers and also with the issuer and their participation in future IPOs.

hristov 14y ago

The reason is obvious to me. In fact it is so obvious now that I am kicking myself for not finding a way to make money out of it. It is related to the reasoning proferred by the Atlantic, but it is not exactly it. It is true that Zynga and facebook are very related. And for that reason, it seems to me that a lot of Zynga shareholders were holding Zynga shares not because they want to own Zynga, but because they want to own Facebook and there was no way to buy Facebook on the public markets until today. So a lot of Zynga shareholders were merely holding Zynga as a proxy for Facebook. Once Facebook was offered all those people decided to sell Zynga to buy Facebook. And Zynga tanked accordingly. Now of course you will ask, why did Facebook seem to tank at the same time. If my theory about Zynga was true would that not mean that Facebook should go up as Zynga tanks. Yes, if all other things are equal. But in this case they were not. Facebook went down for a different reason. The reason Facebook went down is the usual immediate post IPO sell-off when a bunch of people that got into the IPO sell their shares immediately to make some quick profit. So yeah, I wish I had thought about that yesterday.

hristov 14y ago
To further support my theory, I note that LinkedIn also fell today by 5.6%. This was not a fall as steep as that of Zynga, but of LinkedIn is not as closely intertwined with facebook as Zynga.
- jarek 14y ago
  GOOG dropped by 3.6%, that's around $7.1B in market cap which is almost half of the entire Facebook offering - do you suppose this was driven by people who really wanted Facebook exposure, too?
  - ArchD 14y ago
    A lot of tech stocks declined today, not just GOOG, though GOOG declined quite a lot. Even (Adobe) ADBE declined by 2.19%. Possible explanation: If you were a big institutional fund manager with a large portfolio, would you put your money in thousands of small-cap companies or a few large-cap companies? When an opportunity like FB arises and you want to get in, what would be the easier way to get the liquidity needed to buy FB? If you don't have very sophisticated trading and portfolio management technology, one of the easiest ways to get the liquidity is to sell the large-caps first, and GOOG could be one of them. Another possible explanation: GOOG and FB are perceived to be enemies/antagonistic. So, when one stock has a positive event (IPO that provides lots of liquidity), the other stock is impacted. This is a psychological explanation. I can't prove it.

deleted 14y ago

[deleted]

panarky 14y ago

We know that Morgan Stanley propped up Facebook's share price to keep it from falling below $38. To prop up the price, Morgan had to buy a truckload of shares. How else would you hedge your exposure to all those Facebook shares than to short Zynga and Google?

vibrunazo 14y ago
> We know that Morgan Stanley propped up Facebook's share price to keep it from falling below $38. Why exactly do they wanna do that? If they're artificially holding it up, doesn't that mean they'll lose a lot of money in the next weeks when it goes back to an non-artificial price?
- panarky 14y ago
  Here's why: "Buyers did not rush into the market to snap up shares of the social networker. And the big Wall Street banks that brought Facebook public scrambled to prevent the stock from collapsing into declines." "The underwriters averted a potential debacle by scooping up shares of the company during the Nasdaq debut. This propped up the stock, keeping it above the $38 offering price through most of the day." “When a deal gets priced and breaks price on the first day, that’s definitely a major embarrassment," said trader Andrew Frankel, co-president of Stuart Frankel & Co. "The practice is pretty standard during IPOs, especially high-profile ones like Facebook. The big banks buy into a wave of selling as a way to prevent their customers from suffering big losses." Source: http://www.latimes.com/business/technology/la-fi-tn-facebook-trading-20120518,0,6622700.story http://www.latimes.com/business/technology/la-fi-tn-facebook...
- peterjancelis 14y ago
  Such a prop up guarantee is probably part of the underwriting deal these investment banks signed. Morgan Stanley was the lead in this IPO deal.
thisisstupid 14y ago
Congratulations for having the only reasonable answer in the entire thread.

ArchD 14y ago

I think this article got many points right, but it failed to mention that ZNGA trading got halted, which could largely explain the semi-recovery of the price. You don't need to invoke the computer algorithms argument to explain that.

Dzidas 14y ago

It looks like pair trading.