Facebook IPO - rich get richer?

[Deleted]

I know very little about the stock market.

On the radio today, the DJ was saying that larger companies could buy stock for Facebook today at $38 a share, and when it becomes available for the little people (like me!), it will be a higher price.

Why? That seems really backwards. Why would we want rich people/corporations to be able to buy things much cheaper than someone like me, who has little to invest?

I'm not buying shares anyway, but I was curious if this was even correct and if so, why is this allowed? Shouldn't it be available to everyone at the same price? The rich will still benefit more anyway because they have more money to spend buying it.

[gt7301b]

There has been a secondary market for Facebook stock for quite sometime now. I read an article in the WSJ that mentioned shares were trading at $44 a share as recently as March.

[rubytue]

That is generally how IPOs work. FB was one of the few that had an option for the little guy to buy at IPO price through ETrade and maybe some other of the online brokers. But even this, you had to be a big fish in the online broker sea. I thought I saw the option on TD Ameritrade, but I think it was $500k account, 30+ trades per month. Or something like that.

[thumper55]

we asked for 1500 shares from etrade and got granted 100 shares at $38 today

we are by no means regular traders, but I have had my etrade account for about 20 years, so maybe we got the shares because of that.

[shell403b]

YES! My H was JUST telling me about this last night.

[barefootcontessa]

May 18, 2012 8:52:53 GMT -5 RockNVoll said:

I'm not an expert but I'll attempt to explain based on my IPO experiences as a young analyst back in the day.

When companies go public they rely on big financial institutions to buy and ideally hold large blocks of the stock. Having a strong base of institutional shareholders is critical to supporting the stock. Also, the underwriters--i.e. the investment banks running the process--have long-standing relationships with these institutions and will often allocate shares based on their previous experience of how long they tend to hold the shares and any host of factors.

After a two-week roadshow where management meets these investors to pitch the company and its stock, the lead underwriters then look at the book of orders that the institutions have placed. Based on how strong the demand is, they decide on a price per share, in this case $38, and how many shares each buyer gets.

Some of the shares also get allocated to brokerages to sell to retail investors like you and me. Based on an article I read this morning, about 30% of the available shares were set aside for retail vs. the more typical 10 or 15%, at the company's behest.

When it starts trading this morning, it's now the open market supply & demand dynamics that determine the share price. There is often a first day "pop" in share prices because of frenzied buying, which will almost certainly be the case with Facebook. This is why you and I won't be able to get the shares for $38.

Does that make any sense? Happy to try to answer any additional questions.

What a great explanation.

[thumper55]

May 18, 2012 9:18:28 GMT -5 @sfgal530 said:

May 18, 2012 9:10:20 GMT -5 thumper55 said:

we asked for 1500 shares from etrade and got granted 100 shares at $38 today

we are by no means regular traders, but I have had my etrade account for about 20 years, so maybe we got the shares because of that.

About 25-30% of the share allocation went to retail investors (higher than the 10-15% average). You must either have (1) completed a lot of trades through etrade recently or (2) met their minimum balance requirements.

FWIW, I have heard that even at the big investment banks, clients weren't able to get more than 500 or so shares - so getting even 100 is good.

this made me curious and I asked DH (he manages the trades) and other than FB, there hasn't been recent trades. However he did transfer some moohla in there, so you are right.

[SJ]

May 18, 2012 9:31:14 GMT -5 @sfgal530 said:

May 18, 2012 9:29:47 GMT -5 RockNVoll said:

So sfgal530, I have to ask, how much do you and your DH stand to gain on the IPO, assuming a $38/share price? You can answer generically like, "We'd have enough to pay off the mortgage and buy a couple of Ferraris."

Or you can just ignore me of course ;D

I'll just say my husband was one of the first 50 employees and leave it at that.

Happy Day for you!!

[Deleted]

Thanks for the explanation Rock n Voll and others. I'm slowly learning bits and pieces so maybe someday I can participate

What does "one of the first 50 employees" mean? I take it that's a good thing but employees of what? lol. I'm good at budgeting but that is the extent of my financial savvy.

[SJ]

sfgal, I am positively drooling thinking about all the travel I would plan!

[dr.girlfriend]

May 18, 2012 9:38:49 GMT -5 @sfgal530 said:

Honestly, we're going to travel, buy a house, and then give most of it away. There will be no fancy cars in this girl's driveway.

Aw, you guys sound awesome. Enjoy!

[octwed07]

May 18, 2012 9:58:30 GMT -5 @sfgal530 said:

May 18, 2012 9:46:58 GMT -5 dr.girlfriend said:

Aw, you guys sound awesome. Enjoy!

Ha, thank you. We are very normal. I have every intention of staying that way.

Good for you and your DH!! I feel like i've been slaving away in start ups for years.. sooo hoping that we get bought out or get some crazy IPO.. Yes, i'm still dreaming the dream of the 2000's. oh well!