Today, not that much has changed.

After debuting close to $40 and cratering to just under $18 in August, the stock has somewhat stabilized in the $25 region, down 30 percent from its opening-day high. And along the way, the story emerged of how Facebook tried to hide some of the mobile risk inherent in its business and how the company panicked and botched its IPO by using vague positive language in its public prospectus and, apparently, specific negative information about slowing revenue growth to institutional investors privately.

Not to mention the $100 million paid to banks to stabilize the stock — on top of $176 million in IPO fees — for efforts that ultimately failed. And technical glitches that cost the NASDAQ $62 million in compensatory fees.

All of which negatively affected the overall IPO market.

That all said, however, Facebook has seemingly nicely recovered from the disaster — at least from a business fundamentals perspective. Revenue growth was strong in its latest quarterly earnings release, with the company booking $1.46 billion in revenue for Q1 2013, compared to about $1 billion a year ago. More importantly, mobile was significantly up, accounting for 30 percent of ad revenues, and Facebook singlehandedly accounted for 6.5 percent of all online ad dollars spent in the U.S.

Not exactly Google numbers, but pretty good nevertheless.

And the company has massively beefed up its advertising options. It’s now posting retargeted ads right in the news feed, once sacrosanct territory. And in a move aimed directly at advertising giant Google, Facebook has launched a self-serve tool that allows advertisers to target its users based on what they actually buy and want to buy offline … which is a significant move to targeting the intent graph that Google hits so well by virtue of being a search engine, but Facebook has often missed since its visitors are on the site to meet and greet people. In addition, as soon as July, Facebook will be rolling out 15-second video ads in the news feed, a product that it will be charging major brands millions of dollars for.

All of which is having an effect.

The consensus recommendation for Facebook is currently a buy, with a price target of $34. Most analysts are in the Strong Buy category, with few or none in the dreaded Underperform or Sell slots. And in the past four weeks, analysts have revised their earnings estimates upward by a factor of 6 to 1.

So there’s a lot of positive in Facebook’s future, and there’s a ton of potential. But it’s still challenging when analysts compare Facebook stock with other internet high-fliers like LinkedIn or Yelp, which rose 148 percent and 48 percent in their first years, respectively.

But at least it’s better than Groupon and Zynga, both down around 75-80 percent.

And, I would argue, while there are a ton of challenges and many very significant competitors — primarily Google — the future for Facebook is bright.

Even if the public start was a stubbed toe.

As the fella says in the classic musical Singin’ in the Rain: You got the fame, you gotta take the little heartaches that go along with it.

Facebook CEO Mark Zuckerberg’s got the fame. He’s a household name and an Andy Samberg character. He also made around $13 billion in his company’s initial public offering last year.

Now for the little heartache: A tax bill for one. Billion. Dollars.

When reached for comment, Zuckerberg told VentureBeat, “This suuuuucks.”*

*Just kidding. That never happened. But a panel of California CPAs did tell CNNMoney that the entrepreneur’s capital gains bill will probably be around $1.1 billion.

Ungodly tax bills aside, the guy gets to keep roughly $12 billion of his paper fortune — and a controlling percentage of votes on Facebook’s board.

And we are 100 percent certain that Zuck and his army of financial professionals have been preparing for the pitfalls of new wealth since long before the IPO. In fact, Zuckerberg sold around $1 billion in shares on the day of Facebook’s IPO, likely in preparation for the tax bill that was to come.

The young CEO also makes a fair amount of charitable contributions, which, though we’re sure they come from the best intentions, probably help to offset his tax bill. Example: the half-billion donation he made at the end of last year.

Image credit: deneyterrio/Flickr

This was Facebook’s year. The social network made its debut on the public market, and it crossed the unprecedented one-billion-users mark. For many of the social network’s earliest employees, it was the stuff dreams are made of.

But so much happened to make those two dreams into realities. And the realities weren’t always all they were cracked up to be: The initial public offering got off to a painful start. In fact, stock prices for Facebook still haven’t recovered. And a billion users means a billion opportunities for bullying, privacy mishaps, and user data breaches.

Still, all highs and lows being considered, Facebook came into its own this year in a way no one in the world could ignore. Here are the biggest moments of Facebook’s 2012.

10. Zuck’s first patent

Facebook CEO Mark Zuckerberg got his first-ever patent this year. Some found it ironic that the patent dealt with online privacy. But since Facebook customers first began expressing growing concerns with how the network displays and handles user data, the company has viewed privacy in a much more serious light. And a few international lawsuits and investigations didn’t slow down that quest, either.

The story: “Patent #8,225,376 limits what users reveal online by implementing a privacy policy on their status updates and profile information … dynamically generating a view of a user’s profile page that is compliant with the user’s stated privacy preferences. … My friend gets all my information; my business contact only gets some.”

9. Facebook’s war with Google over data-center design

Facebook fired up its Open Compute Project a while ago. Its goal: to open-source the specs and designs for wildly innovative and efficient data centers, making the planet greener and lowering costs for large-scale Internet companies. In 2012, Facebook got a bunch of companies to sign on to the project, with one major exception: Google.

The story: “‘The benefits of sharing so far outweigh the benefits of keeping it all closed,’ said Facebook exec Frank Frankovsky. Of Google’s ‘competitive advantage’ argument, he added, ‘I have trouble getting myself in the mindset of thinking the infrastructure is a strategic advantage from a cost perspective. It’s really more about serving the end users — that’s what differentiates a business.’”

8. The GLAAD Award

After a few years of constant crusading for LGBT issues, especially antigay bullying by and toward teens and young people, Facebook got a huge vote of approval: a prestigious award from the Gay and Lesbian Alliance Against Defamation (GLAAD). At a star-studded event, Mark Zuckerberg and Sheryl Sandberg both sent a video message of support from Facebook to the LGBT community at large.

The story: “‘After violent antigay images and comments were posted on a memorial page for LGBT youth, Facebook worked with GLAAD to monitor the highly visible page and launched, in conjunction with several LGBT organizations, the Network of Support,’ a Facebook rep said.”

7. A big mobile mistake?

After months of leading the charge in campaign for the mobile web, Facebook saw its leadership do an abrupt about-face. At a September event, Zuckerberg told a large audience, “The biggest mistake we’ve made as a company is betting on HTML5 over native.” But it reversed positions in a later, private chat.

The story: “Doug Purdy, the social network’s director of developer products, said HTML5 work at Facebook isn’t going away. ‘I have an entire team of folks that are focused on HTML5,’ said Purdy. ‘And [mobile browser standards project] Ringmark continues to be important to us; we have a team of people working on that.’”

6. Timeline launches to the world

Zuck introduced Timeline to the world back in 2011, and we got up close and personal with Timeline’s design mastermind just a month later. So when the new look and features of Facebook personal profiles finally rolled out to the world in January of this year, we were more than ready to share the good news and great design with everyone.

The story: “‘We think that people are really going to like these,’ said Facebook CEO Mark Zuckerberg. ‘We wanted to design a place that you’re proud to call your home. It’s a completely new aesthetic for Facebook.’ This ‘new aesthetic’ is probably the biggest change you’ll note when you start using Timeline.”

5. Real friends, real Gifts

Facebook acquired gift-giving startup Karma in May, and it took the company just a few more months to roll out its own, fully integrated version of the service. Facebook Gifts was the social network’s way to let you give real gifts — wine, toys, cookies, even Uber car rides — to the ones you care about most. Not just sweet but also savvy, Gifts should be great for Facebook’s bottom line. And the service rolled out to all U.S. users just in time for Hanukkah and Christmas.

The story: “‘We think gifting is really a form of communication,” said Gifts creator and Karma founder Lee Linden. ‘We think people want to give gifts the moment they think of someone … and it may not always be convenient to pull our your purse or wallet and find your credit card right now.’”

4. Facebook Actions take over the web

With Actions, Facebook began its long-promise invasion of the web. The company has a vision that its buttons and social graph and commenting system — its very architecture — will someday soon be present on every website and mobile app imaginable. That your bank will use Facebook for your logins; that your actions and interactions on every website will find their way back to your Timeline — if you want them to. And in January, that invasion began in earnest.

The story: “Ideally, said Facebook exec Carl Sjogreen at tonight’s event, any app you find meaningful will be able to connect to Facebook in a way that’s more meaningful than just clicking a “Like” button or automating shares from that app to your Facebook wall — and that all your stories will be told, not through a universe of apps, but universally on Facebook and with a structured context.”

3. Instagram

Zuck & Co. bought a billion dollars’ worth (more or less) of hipster-ized photos with the surprising purchase of Instagram in April. As Facebook continued on its march toward total global domination and Internet ubiquity, it saw a couple things in this upstart mobile company. First, an emphasis on capturing and sharing images quickly and well that Facebook couldn’t duplicate. Second, a devoted (and huge) following of iPhone app fans. Both the users and the tech made this buy a one-of-a-kind for Facebook.

The story: “Instagram cofounder and CEO Kevin Systrom told VentureBeat when the Android app launched, ‘This release brings us closer to the idea that we can help every person on earth share their lives and discover the world through a series of beautiful images.’ Every person on Earth — did you notice that choice of wording? Can you think of any other apps aiming for a userbase of every person on earth? ‘Providing the best photo sharing experience is one reason why so many people love Facebook, and we knew it would be worth bringing these two companies together,’ said Zuckerberg.”

2. One bill-i-on.

One billion users — not just registered users, but monthly active users. Aside from Google web search, we can’t think of a single web application that’s reached that mark. The truly interesting part: With Facebook’s focus on the developing world and feature phone access, the first billion is just the beginning.

The story: “‘Helping a billion people connect is amazing, humbling, and by far the thing I am most proud of in my life,’ Zuckerberg wrote in a Facebook post. ‘I am committed to working every day to make Facebook better for you, and hopefully together one day we will be able to connect the rest of the world, too.’”

1. IPO

The shares were priced — conservatively, almost everyone in the Valley thought — at $38. The night before the initial public offering, Facebook employees celebrated at the HQ with a hackathon. On IPO day, Zuck rang the NASDAQ opening bell with a look of pride and elation on his face. But the same day, the company got slapped with a privacy lawsuit. Amid technical snafus from NASDAQ, the stock started to slide, taking other tech stocks with it.

Faceboook stock dipped as low as $17 in its tumultuous first months on the market, although it started clawing back some of those losses this fall, and it’s now trading at about $27 (as of this writing).  The most highly anticipated IPO of the decade left investors and onlookers — even Zuckerberg himself — disappointed, while the faithful (or optimistic) must wait and hope.

The story: “Analysts who had previously been bullish on Facebook are surprised. Early investors are disappointed. And social media enthusiasts are at least somewhat shocked. ‘I think it is a good long-term investment,’ said Mark Siegel, managing partner at Menlo Ventures. ‘The nature of the product itself makes it difficult to be displaced … I think it’s that kind of a core, bellwether company in a tech sector. It’s gotten there remarkably fast, but it’s there.’”

FB data by YCharts

Generational differences extend beyond gift preferences, supernatural proclivities, and musical taste, it seems. According to data pulled by SurveyMonkey, these differences can also extend to perception of events in the tech world. A brief comparison of what attracted the attention of of the 18-29 year old demographic, versus the nation as a whole, revealed some interesting similarities and differences in what attracted attention.

While nationwide, 26 percent of consumers felt the iPhone 5 was the most important achievement in hardware, the 18-29 year old demographic put their top two votes into the Samsung Galaxy S III and then the Google Glass Project, with the iPhone 5 taking the bronze. Everyone agreed, however, that the Surface’s performance was underwhelming.

As for the big stories of the year, Facebook’s IPO generated the most buzz across the board. Forty-two percent said that they spent the most time reading about Facebooks IPO, while twentysomethings split their interest equally between Facebook’s IPO and the Instagram acquisition. Apple’s various struggles with maps was also popular with folks of all ages.

Young or old, everyone loves juicy gossip. John McAfee’s arrest in South America was universally thought to be the the most intriguing news about a notable figure in the tech community, followed by Mark Zuckerburg’s wedding and Marissa Mayer’s pregnancy.

As the year comes to a close, Facebook’s lockout period is ending, and it all starts this week, with up to 271 million shares possibly hitting the market tomorrow. Over the past few months, Facebook employee-shareholders have been prohibited from selling their stock — a fairly common practice, and one that seemed even more necessary due to the wild trading volumes and highly volatile price fluctuations the stock has seen since its infamous IPO.

But as the lockout ends, employees have more to worry about than stock prices. Many of them will also collect enough cash from their stock sales to inherit a whole new set of concerns, from taxes to diversification of investment.

In a recent phone conversation with Mark Castelin, director and senior investment advisor at investment advisory firm Harris myCFO, we got to talk a bit about what Facebook’s newly minted millionaires can expect.

“One of the reasons the IPO was set for the day it was is that capital gains taxes will be going up at the end of this year,” Castelin began. “So those who liquidate will be able to do so before capital gains go up, and a lot of individuals will be looking at that.”

Also, because of the lockout ending and the anticipated higher trading volumes, Castelin said, “There may be temporary downward pressure [on the share price], but if the fundamentals are good, investors will want to get in.”

Currently, with Hurricane Sandy having temporarily halted trading and with Facebook stock still just beginning its recovery from a long downward spiral, shares are trading at $21.40, down around 2.5 percent for the day and down around 43 percent from Facebook’s May 18 debut price of $38.

Trading volume has spiked in the past several days, shooting up from 30 to 50 million shares daily to more than 220 million shares on October 24 and more than 70 million shares traded daily between then and now.

“At the end of the day, it’s going to be the fundamentals of the company that’s going to drive the stock,” Castelin said.

Naturally, any financial advisor will be telling Facebook employees to diversify their assets — without dumping all their Facebook shares in a single day or week, of course — and Castelin noted that real estate might be on Facebookers’ radars, as well.

“Individuals at that age in their mid-20s to early 30s will really, if they’re using an advisor, actually conclude that it’s a reasonable time to make a real estate investment,” he said.

But especially given the relatively tender years of the average Facebook employee, Castelin doesn’t anticipate all employees’ investments to be quite as staid as a condo here or there.

“It is a very dramatic change in their lifestyle,” Castelin said. “There’s certainly going to be some level of [conspicuous consumption]. Everyone desires to have that lifestyle, to splurge a little bit.”

In other words, brace yourselves, Rolex and BMW dealerships of Silicon Valley.

Another long-anticipated effect of the lockout’s ending is a small boom of early-stage startups.

“Some [employees] will decide they want to quit Facebook … to do their own business,” said Castelin, who added that other startup activity will include angel or seed investments, too.

“Quite a bit of money is going to be flowing into other startups,” he said. “You’ve seen waves of people getting wealth from other people in the community, directly through investments or funding venture capital or private equity firms. … Invest in things that you know. To the extent that these individuals know the people, know the space, they will feel comfortable investing in the space.”

And given Facebook’s connect-the-world-to-improve-the-world bent, we can also expect to see a lot of charitable activity from Facebookers who are divesting.

“Some others are looking at philanthropy, too,” Castelin said. “It’s amazing how many young people are looking at socially conscious investing, green investing, and passing that wealth on to future generations.”

Of course, charitable activities don’t hurt a young millionaire (or several-hundred-thousandaire) suddenly faced with a huge tax bill, either. And taxes are something Castelin noted all Facebooker shareholders should be thinking about.

“The number one thing is to plan what to do with all of that money,” he said, including plans for providing for parents, spouses, and family “in a tax-advantaged way” and using strategies to take advantage of tax laws.

Castelin said Facebookers should have a trusted advisor who is working in their best interests and who isn’t affiliated with a bank or working on commission — and finding that advisor might involve five or six in-person interviews with different firms.

“Be cautious. Don’t think that you have to do anything with your money,” he said. ”You’re young and still have plenty of time to make mistakes, and you now have a financial cushion to make some mistakes. … Just don’t put all your eggs in a single basket, and do things incrementally in a very measured, methodical fashion.”

Top image courtesy of Kiselev Andrey Valerevich, Shutterstock

“If you’re going to leak something to TechCrunch, don’t do it from your work email,” TechCrunch coeditor Alexia Tsotsis tweeted this afternoon.

The tweet in question references TechCrunch’s middle-man role in a Facebook IPO-related legal matter that ended with underwriter Citigroup being hit with a $2 million fine, and the firm terminating one of its top research analysts.

Tsotsis has a point about using a work email account to leak information, especially if the information in question involves the most hotly anticipated consumer Internet public offering since Google. Yet that’s exactly what a Citigroup junior analyst did ahead of Facebook’s IPO.

The traceable email, which included confidential research on Facebook’s risks and its financials, led to the firing of the junior analyst and today’s axing of his boss, Mark Mahaney, Citi’s senior research analyst. Mahaney, according to his LinkedIn profile, was the number one ranked Internet analyst by Institutional Investor Magazine from 2008 to 2011. We’re going to hazard a guess that the honor won’t be bestowed on Mahaney for 2012.

As outlined in a court settlement document involving The Commonwealth of Massachusetts’ securities division and Citigroup, junior analyst Eric Jacobs emailed two reporters at TechCrunch on May 2 with the non-public information, which included an email attachment that outlined Citi’s internal research on the social network.

The Massachusetts division uncovered the email after obtaining a subpoena “concerning a separate matter in connection with the Facebook IPO,” according to the court document. Citi settled with the division for its failure to prevent the disclosure of the confidential research, a violation of securities law, and other charges. The firm was hit with a $2 million fine for the violations.

Mahaney, meanwhile, was fired today for allegedly trying to cover up the violations, according to the Wall Street Journal. Separately, Business Insider used information provided in the court document to piece together the identities of Jacobs and the TechCrunch reporters involved, Josh Constine, a Stanford pal of Jacobs’, and Kim-Mai Cutler.

All television-worthy drama, I’d say. Good thing we have that Silicon Valley reality show to look forward to.

Photo credit: lev radin / Shutterstock.com

Facebook stock is trading at a new low: $18 and scant change as the markets creep toward their closing. We place the blame on analysts, which dealt the struggling social network a double-whammy downgrade to expectations of its revenue and target stock price.

Yesterday, we reported that analysts at eMarketer had lowered their revenue forecast for Facebook’s 2012 income by a solid billion dollars — and they weren’t alone. Wedbush Securities had also lowered its forecast by an even larger figure for a 28 percent decreased forecast.

Once projected at around $6 billion or better, Facebook’s 2012 revenue was now pegged closer to $5 billion by three major firms.

This news was the partial cause of heavy after-hours trading, making Facebook one of the most-traded stocks by volume overnight. The market closed with stock trading at just a few cents more than $19 per share. By the time the opening bell rang, Facebook stock was trading around $18.60.

Then more bad news hit the wire. This morning, we learned that Bank of America and other major financial institutions had dropped their price targets for Facebook stock. BOA lowered its target from $35 to $23, a 34 percent decrease. Bank of Montreal slashed its target for Facebook shares from $25 to $15, down 40 percent overall.

Facebook closed the day trading at $18.05, dipping briefly to its all-time low of $18.05 during the last moments of the day. Here’s a chart showing some details of the stock’s performance over the past 24 hours:

Facebook is now trading down more than 50 percent from its starting IPO price.

Poor Mark Zuckerberg.

Less than two weeks after the company’s freshly-minted public shares hit a low of $20.84 comes the reminder that about two billion more shares will hit the market between now and May, 2013.

Facebook dilution starts this week.

Fully 271 million shares could come on the market this Thursday, reports the Wall Street Journal. That would dilute Facebook’s already-outstanding pool of publicly-traded shares, which currently number 421 million, by 64 percent. With so many more shares on the market, Facebook’s stock price could drop even lower.

It’s an unfortunate but unavoidable side effect of the initial public offering process, but it’s one that’s especially sharp because Facebook’s IPO released an unusually small number of shares to public trading. Most IPOs sell 25 percent or more of the offering company’s stock. By contrast, Facebook sold only 20 percent. Its IPO price was $38, and the stock began trading at $42 on May 18, 2012.

The Journal notes that none of the investors whose share lockups end this week have announced any intention to sell their stock. Those investors include Peter Thiel, Accel Partners, Elevation Partners, Greylock Partners, Microsoft, Goldman Sachs, and Tiger Global.

Also, it’s not exactly a surprise that all of Facebook’s shares — like any public company’s — will eventually be publicly traded, so some experts feel that this expectation is already priced into the stock.

Employee lockups, including Zuckerberg’s, start expiring in October, with a total of 1.2 billion shares potentially coming on the market by the end of December, the Journal reports. Then another block of 529 million shares, held by Russian investment firm DST Global, Yuri Milner, and affiliated investors, comes on the market in May, 2013. At that time, the company’s total number of outstanding shares will all be trading on the public market.

Facebook stock has come up a bit from its low last week, buoyed perhaps by the news that Netflix CEO Reed Hastings was buying $1 million worth of Facebook shares.

FB data by YCharts

FB data by YCharts

Top photo credit: Andrew Feinberg via photo pin

Fidelity Investments, an early and major purchaser of Facebook stock, let go of 1.9 million shares during June alone, when the social network’s value on the public market sank as low as $25 per share.

Currently, the shares sit at $20.85 in after-hours trading. Facebook stock hit a new low today: $20.84, down $25 from where it sat just moments before its initial public offering started back in May.

Watching Facebook’s stock ticker over the past couple of months has been a grueling exercise for casual onlookers and a major disappointment for early investors. Fidelity, which includes a multitude of separate funds, bought large amounts of pre-IPO Facebook stock; as a result, we can’t really say whether or not any of the funds turned a profit.

Before May, it was not uncommon to see Facebook shares trading in the high thirties and mid-forties on sites such as SharesPost and SecondMarket. If Fidelity funds paid anywhere near those amounts, it’s highly likely they lost out when selling shares over the summer. Prices wavered in the low thirties at the end of May, sinking into the twenties in June.

The Wall Street Journal reports that Fidelity funds originally bought $200 million in Facebook stock early in 2011. In June alone, 21 Fidelity funds divested, dumping nearly 2 million shares onto the public market.

Fidelity wasn’t alone in its optimistic expectations of Facebook stock performance, however. Other analysts and investors predicted the stock price would wind up selling for between $50 and $60 per share.

Nasdaq has been at least somewhat to blame for the botched debut of Facebook shares. The stock exchange is refunding early investors to the tune of $40 million or more in cash.

And of course, many others are still hanging on to their Facebook stock. After all, just a few months after the company’s IPO, we’re all still very much at the beginning.

“This is an eight-year-old company,” pointed out Rebecca Lieb, an Altimeter Group analyst, in a recent interview. “When Google went public, they had only recently developed ad products. Facebook is at the beginning of mobile products, advertising products — and it hasn’t even started with commerce products.”

Fidelity is the third-largest mutual fund company in the United States. It’s privately held and counts more than 20 million individual and institutional investors among its clientele.

Here’s a sad little chart we made to show you Facebook’s performance over the past three months with a few other tech stocks thrown in for comparison:

In a deal worth an estimated $40 million or more, Nasdaq is planning to bail out investors who lost bigtime during Facebook’s disastrous IPO.

Back in May, when Facebook stock first went public, Nasdaq was responsible for some glitches in early trading. Huge trading volumes caused by rabid anticipation of the IPO were met with delays, a lack of trade confirmations, and general mayhem.

While some parties lay the blame on Facebook for the screw-ups, Nasdaq admitted its own culpability in the glitch-storm and reportedly offered investors around $13 million in cash and $27 million in trading credits.

Some of the larger investment firms may have lost as much as $100 million in the IPO, and they reportedly didn’t take well to the freebies-plus-cash offer.

Sources say a revised deal is all cash and is currently under review with the SEC. We’ve contacted Nasdaq, but a rep told us Nasdaq is not commenting on the deal yet.

On Facebook’s first day on the market, shares opened at $42. Analysts had forecast trading in the $40s, and pre-IPO private trades supported that hypothesis. However, the stock finished the day at $38.37 per share, around $4 down from its starting price.

Two weeks later, the stock had sunk to $27, around 30 percent lower than its opening price. This kind of lackluster performance ended up dragging down a few other boats in the tech-startup harbor, with other tech stocks dipping and some companies even choosing to delay their own IPOs.

Here’s a look at Facebook and other recent tech IPO stocks over the past couple months:

hat tip:Fox Business

Facebook’s post-IPO performance has been poor. But is it so poor that it will hurt the prospects for other startups?

The short answer: Almost certainly.

This is the subtext of the wave of anger and disappointment over Facebook’s stock slide over the past few weeks.

First, let’s get something straight: Facebook did well for itself and its investors, although its bankers and top executives allowed some embarrassing, unethical, and possibly illegal things to happen — notably, sharing detailed revenue projections with key investors that weren’t available to the broader investing public. The company is now faced with several state government investigations as well as two shareholder class-action lawsuits, which will cause problems for it and its executives.

But as many commenters to my earlier post pointed out, it doesn’t matter much to Facebook — or even to its employees — if the stock declines after the IPO. The stock price six months from now, when employees’ post-IPO lockup periods expire, is much more significant.

The IPO mess will inconvenience the company for the coming year, but it doesn’t make a big difference to how Facebook operates or to its long-term business prospects.

Anyway, chief executive Mark Zuckerberg has made it clear that he’s not likely to manage to Wall Street’s expectations. That’s one of the reasons he’s kept majority control of Facebook, through clever application of a two-tiered share structure. So suck it up, speculators and short-term investors: This isn’t your game.

But Silicon Valley isn’t made up of day traders. No, the real reason people here are worried about Facebook stock is because it will affect the larger investing climate. As Y Combinator founder Paul Graham said in an open letter to YC companies last night, investors are already convinced that Facebook’s IPO “will hurt the market for earlier stage startups.”

In short, it means valuations are coming back down to earth. Early-stage investors can no longer be sure that the public markets will provide an easy, gullible cash-out for the companies they invest in, no matter how ridiculously inflated their valuations are. Let’s just take a look at a few recently-public companies and how they’ve done since their IPO dates:

• Groupon: Down 63 percent
• Pandora: Down 33 percent
• Yelp: Down 39 percent
• Zynga: Down 40 percent
• Facebook: Down 30 percent

Yes, it’s ugly out there. Who’s going to want to invest in a startup if they can’t see the promise of easy, stupid money at the end of the IPO rainbow?

Graham’s advice to entrepreneurs is simple: Lower your expectations for the kind of valuation you’re going to get, and don’t need money. Act as if the round you just raised is the last you’re ever going to get.

New York-based VC Fred Wilson adds some perspective to Graham’s note, pointing out that Facebook’s current enterprise value (what the company is worth if you subtract the pile of cash it is now sitting on) is about 10x its current revenue run rate, and 25x EBITDA, which means it’s still valued very, very highly.

In other words, don’t panic, but don’t expect that your startup is going to command the same multiples. (Of course, there’s another, scarier takeaway from Wilson’s analysis, which is that Facebook stock has even further to fall — but let’s assume that there’s some logic behind giving high multiples to a company that has almost a billion users and no significant competition, and which has only begun to monetize its network.)

Maybe, just maybe, the Facebook deflation is what we need to get everyone in the tech industry focused on meaningful innovation again. It’s time to get back to business.

Note: I’m going to be moderating a panel with a few high-level investors at the Glimpse conference tomorrow in San Francisco. It’s a conference about social discovery, and I plan on grilling these VCs about the climate for social startups. The conference is sold out, but I’ll report back on what I learn tomorrow, if anything. In the meantime, if you have questions for the investors, let me know in the comments here.

Photo credit: Helga Weber via photo pin

Facebook wrapped up its second week of public trading at a $27.84 a share, down 26.8 percent from its initial offering price of $38.

The all-time high for Facebook stock is $45, and its all-tie low is $26.83 — a huge range given that the company only went public two weeks ago.

This IPO has been a huge disappointment so far for early traders — if not for the company itself. We saw red flags on day one of the offering, when the stock price closed down $4 from where it opened. And to be frank, most Silicon Valley insiders, including professional investors, didn’t see this coming.

The poor performance of Facebook stock has had a negative trickle-down effect on other new tech stocks. In fact, the market for public tech stocks has been so turbulent over the past couple weeks that travel search company Kayak delayed its IPO, even though its roadshow had already been planned for this week.

Here’s a five-day look at tech stocks, as well as general market indicators, to get a sense of how the overall industry is performing:

As you can see, the strongly social companies are taking the largest hits; Yelp and Groupon fared even worse than Facebook. But overall, this wasn’t the rosiest week for anyone, tech or otherwise.

“We’re clearly in a state of euphoria about the potential of social media,” said Michael Pachter, managing director of equity research at Wedbush Securities, in a conversation with VentureBeat. “The bubble is not as large now that Facebook’s has deflated.”

Pachter went on to say that Facebook’s share price decline is definitely and only because of the large number of shares issued: 484 million shares, all told. For contrast, he noted, Google’s IPO put only 20 million shares on the market.

“In other words, the Facebook IPO was over 10 times as large as the Google IPO. It is clear that the public wasn’t ready to absorb this much stock, and the lack of reassurance from Facebook management about how seriously they consider the share price performance hasn’t helped.”

Still, many have given a year-end target of $42 for Facebook stock, and we would caution naysayers that the story of Facebook’s IPO is, in many ways, still just beginning.

They say a rising tide can lift all the boats in a harbor. The same logic applies to a sinking tide, and Kayak apparently has no intentions of going down with the ship, so to speak.

Enough of the watery metaphors: Plainly put, the Facebook IPO has been something of a disaster, and it’s causing other recently-gone-public tech stocks to take a hit as well. Kayak was planning on an IPO this quarter with a roadshow starting last week; however, executives have decided to put off the deal until the market stabilizes, Bloomberg has reported.

Around the time Facebook itself was prepping to go public, we heard rumors of a delay for the same reason: tech stocks were taking a beating in the public market. Facebook decided to forge ahead, and as a result, its shaky first day on the NASDAQ stock exchange quickly turned into a downward spiral as the stock price plummeted. So far, it’s down 26 percent, give or take, from where it started a couple weeks ago.

And as Facebook, the biggest social network of them all, drifted gently downward like a punctured zeppelin, others followed suit. Check out these sweet stats we gathered for you:

Practically the only newer tech stock that hasn’t followed the same pattern is LinkedIn, to which we say, not bad, folks.

Kayak, which was planning on a $150 million IPO, originally filed to go public back in late 2010 but has been hesitating ever since due to sub-optimal market conditions. We’ll all have to wait and see when tech stocks pick up steam again — but rest assured, they will eventually recover.

If there was any doubt that Wall Street is a sucker’s game designed to take money from stupid people and put it into the hands of bankers and powerful corporations, Facebook’s initial public offering should clear that up.

Let me recap, for those of you who haven’t yet read Matt Marshall’s detailed story of what went on inside Facebook during its IPO roadshow, or Henry Blodget’s initial expose of these private communications.

As we now know, Facebook revised its earnings estimates downward during the two-week period leading up to its IPO. But while it put general, vague statements about the revenue into its public S-1 filing, it appears to have given much more specific information to its bankers, privately.

The bankers, in turn, communicated the substantially revised revenue figures to select investors. At the same time, key Facebook investors, including Peter Thiel and Jim Breyer, put an extra 83.8 million shares up for sale. The bankers and Facebook also increased the amount of shares they planned to sell to ordinary, “retail” investors to 25 percent, an unusually high number. And when Facebook priced its IPO, it did so at the very top of its range.

At the same time, because the specific revenue downgrades weren’t widely shared, the company continued pumping up demand for its shares. That kept demand high enough on the first day of trading that the IPO clogged up the NASDAQ’s computers, delaying the start of trading by about half an hour (an embarrassment for the NASDAQ). And it ensured that the underwriting banks, led by Morgan Stanley, were able to exercise their “greenshoe” option and sell an additional $2.4 billion worth of stock, bringing Facebook’s total raise to $18.4 billion.

By the end of the day, as the stock slipped dangerously close to the IPO price of $38, it looks like the banks were rapidly buying up more stock in order to level the price out. So they may have taken a bit of a bath in this affair as well, since the stock is now trading at $33.

But what really has taken a beating is the reputation of the banks that led this offering, starting with Morgan Stanley.

Of course, we can’t know why Facebook or its investors and bankers were selling as much stock as possible, at as high of a price as possible, to as many naive investors as possible. But the result is clear: Anyone who bought Facebook stock on the opening day got duped.

Now, from Facebook’s point of view, that just makes good financial sense. While a nice big “pop” in the stock price on its first day of trading makes for good headlines, it’s a sign that the company has mispriced its stock and left money on the table; in Facebook’s case, it maximized its return.

And if you’re buying an IPO stock on its first day of trading in hopes of a quick one-day profit, you’re presumably smart enough to know that you’re basically gambling with your money. So the onus is on you if it doesn’t pan out the first day — or has a terrible first week. Give up your dreams of a quick return and hold onto the stock; maybe it’ll go back into the 40s. Some day.

But what really irks me is the revelation that Morgan Stanley and Facebook may not have actually broken any SEC rules. It appears that it’s allowable for analysts to communicate different information verbally with select investors than they reveal in the publicly-filed documents. That’s a ridiculous situation that seems to run directly counter to the purpose of a public, and transparent, IPO.

Aswath Damodaran at CNN writes that he thinks this was a case of ineptitude on the part of the bankers more than a conspiracy to make as much money as possible. He bases his argument on the fact that the damage to Morgan Stanley’s reputation was far greater than the extra millions it got from the deal.

Indeed, there is a cost to pay for all this mess. Facebook has, yet again, broken the already-fragile trust it has with ordinary Main Street users. It will have a series of subpoenas and investigations to deal with in multiple states and perhaps in Congress. There’s a shareholder lawsuit against Facebook. Morgan Stanley has taken a hit to its reputation. (At a time when almost no one in this country particularly like banks, that can’t be good — although it’s not clear that bankers spend much time worrying about popular opinion.)

But in the long run, will it make a big difference? Probably not. The allegations, if true, will result in various fines, which Facebook and Morgan Stanley will pay. And then they will carry on doing business as before.

Like what you read here? Read past editions of my Dylan’s Desk column, and sign up to get future columns delivered to your inbox every week.

Tilted playing field photo by Conor Gaston/Flickr .

Facebook CFO David Ebersman

The screw-up resulted in a major disappointment in Facebook’s stock debut: The stock’s 15 percent decline since the IPO last Friday may not in itself be tragic. But worse, lawsuits are flying saying that legal guidelines weren’t followed. And there’s the sad fact that regular mom-and-pop investors were apparently left with the more losses on average than large institutions who got privileged information. This all was aggravated by a separate annoyance: glitches in the Nasdaq stock market trading process, which caused delays in trade and cancel confirmations, among other things.

However, based on a number of interviews VentureBeat has had with observers and other sources close to the process, it’s apparent that Facebook itself may be most to blame for the fallout. Facebook chose to be more furtive in public announcements about its business than it was in private talks with large investors.

The “update”

The decisive action by Facebook came on May 9, three days into the “roadshow,” which is the time when Facebook and its bankers visit major investors in hopes of getting them to buy the IPO stock. On that day, Facebook’s executives, led by chief financial officer David Ebersman, signed off on new language in the company’s updated IPO prospectus.

In that May 9 update, Ebersman decided to use vague language when describing how the company’s second quarter was looking. It was extremely understated, considering what we would later find out. According to the filing, specifically on page 57, Facebook said that it was experiencing the same trend in the second quarter that it had seen in the first quarter, that growth in “daily active users” (DAUs) was increasing more rapidly than the growth in ad impressions, driven by many users’ shift to mobile devices.

The exact wording is here:

Based upon our experience in the second quarter of 2012 to date, the trend we saw in the first quarter of DAUs increasing more rapidly than the increase in number of ads delivered has continued. We believe this trend is driven in part by increased usage of Facebook on mobile devices where we have only recently begun showing an immaterial number of sponsored stories in News Feed, and in part due to certain pages having fewer ads per page as a result of product decisions.

Now Facebook is generally growing quickly — and its ads are growing, even if they are growing more slowly on mobile — and so this update itself didn’t send any alarm bells to most investors, and it shouldn’t have. After all, Facebook had long warned about this mobile problem, ever since the first IPO prospectus filing on Feb 1, that revenues could be negatively affected by its huge mobile growth, because monetizing mobile hadn’t been proven. (Indeed, VentureBeat was the first to report this on the day of the IPO filing.)

Facebook’s lawyers may, in the wake of the legal mess it has gotten into, try to argue that the new May 9 language about “DAU’s increasing more rapidly than the increase in number of ads delivered” pointed to something more significant than Facebook had released before. But the reality is that this wording was just too vague to be construed by normal people as meaning anything more than what had already been mentioned before. The sad thing is, if this was such an important update for Facebook, its team must have argued about it a hundred times before publishing. So why was it written as though it was purposefully trying to obfuscate? More on that in a sec.

First, there’s been sloppy reporting about the May 9 update, and it’s worth setting the record straight. The WSJ, the leading publication for many bankers, for example on Thursday implied that the May 9 update was the first time Facebook disclosed that the mobile risks “may negatively effect results.” But the WSJ is wrong. That wording had been in Facebook’s S-1s from the beginning. Take a look for yourself at the original February filing. (See pages 5 , 13, and 46.) The fact is, there is nothing within the S-1 update on May 9 that would give normal investors the sense that there had been a material change about Facebook’s revenue prospects.

The private guidance bombshell

The more significant point is, on the next day, May 10, Facebook made private statements to a select group of banking analysts, telling them the revenue prospects had changed. This was arguably material information at the time — a big no-no.

Here’s what happened on May 10: Facebook got on the phone with a select group of 21 analysts, including analysts of its IPO underwriters, and briefed them on what was really going on behind the S-1 update. Facebook executives guided those analysts through much more explicit material than the S-1 update contained, according to our sources, saying that Facebook now expected the second quarter to be on the “low end of the range” of the financial guidance Facebook had previously given them. VentureBeat has confirmed this wording with someone with direct knowledge of those talks.

Of course, this new information prompted the analysts to take a look at the guidance Facebook had previously given to them, then estimate where the “low end” was, and revise their own forecasts accordingly. They did this beginning on May 10, as disclosed by leaks to Reuters. The banks now forecasted 30.4 percent year-on-year 2012 revenue growth on average, instead of the 36.7 percent growth previously expected. (Compare that to 2011, when Facebook’s revenue grew 87.9 percent year-on-year to $3.71 billion.)

Let’s back up for a second. When Facebook gave its original guidance to analysts in March and April, at the start of the IPO process, it was on firm legal ground in doing so. Indeed, this guidance is a normal part of the process, described in good detail by Henry Blodget, himself a former Wall Street analyst, in his good post about the IPO process Tuesday. He covers a lot of ground that I won’t go over again here.

However, Facebook’s subsequent guidance to analysts, made on May 10, “to the low end” of the earlier guidance, was not on firm legal ground, because this was clearly new information not already in the S-1. It was also clearly different than the general guidance made originally to analysts.

The bankers’ downgrades beginning May 10 were significant, as we previously reported, and were shared with a limited circle of investors. The bank analysts also released lower earnings-per-share estimates, as well as lower revenue forecasts for the second quarter. The estimates ranged between 5.4 percent to 7.3 percent lower revenue for the second quarter than previously — very significant adjustments.

Here are the second quarter revenue estimates, as leaked to Reuters:

• Morgan Stanley — $1.111 bln (new) from $1.175 bln (old)
• Bank of America — $1.100 bln (new) from $1.166 bln (old)
• JPMorgan — $1.096 bln (new) from $1.182 bln (old)
• Goldman Sachs — $1.125 bln (new) from $ 1.207 bln (old)

This obviously was material information for investors. Following the changes, Facebook and its bankers, led by Morgan Stanley, were forced to respond to questions from key clients. We see that these key investors, once informed by these roadshows and reports, started to slash the number of shares they intended to buy. One example was Los Angeles-based Capital Research & Management which cut the number of shares it wanted after talking with the company and underwriters, according to the WSJ.

But not every potential investor was privy to these revised reports.

The mood of investors in IPO stock

Unprecedented territory

So lets summarize why this was so problematic. SEC guidelines prohibit a company from issing information that is materially different from that already in its S-1 prospectus. So what constitutes “material” information? The definition of material information is that “which would be likely to affect a stock’s price once it becomes known to the public.”

Now we’re hearing from sources that Facebook is arguing that guidelines around what constitutes materiality is disputed when it comes to the issue of financial guidance. Facebook could arguably say it didn’t know if its new guidance on May 10 was going to end up being material or not. Indeed, the Facebook IPO is unprecedented because this sort of change in guidance has never happened before, at least it has never happened this late in the IPO process. But precisely since that is the case, because Facebook was on shaky unknown ground, because SEC guidelines haven’t been tested specific around this particular area, Facebook should have made doubly sure to err on the side of caution.

Indeed, a source at one of the underwriting banks we talked with could not give us a clear reason why Facebook should not have updated the S-1 with firmer trend data.

(For more on this topic of materiality, see Bloomberg’s reporting on this. It’s good as far as it goes, but misses clear reference to the fact that Facebook chose a weaker statement in its S-1 update than what it gave to analysts afterward.)

Why did Facebook do it?

We’re seeing all kinds of reporting about how the IPO legal process is a mess, and it’s true that IPO guidelines are frustrating. SEC guidelines do not allow analysts to print anything between when an IPO prospectus is filed until 40 days after the IPO. Yet they’re allowed to speak verbally to a select few of their clients. The bizarre rules are a result of previous regulation, created a decade ago, after abuses made by investment bankers in written reports during the dot com era. These rules may need to be reformed, but Facebook needs to play by them for the time being.

So what Facebook should have done on May 9 is either update the S-1 with clearly stated quantitative data (and go forward with the IPO, and deal with the lower stock price), or else pull the IPO filing altogether and wait for a better quarter.

So why didn’t Facebook do either of those two things? Well, that’s the $100 billion question. One can only imagine the huge amount of pressure that the company was feeling. Facebook, a web site that prides itself on being able to see real-time data about users, traffic and advertising, clearly knew how the quarter was progressing. The roadshow came halfway through the quarter, and Facebook’s update on May 9 was clearly a sign that it realized it needed to say something about its deteriorating revenue situation.

Now the following is just speculation, but it’s possible Facebook felt that if the May 9 update were made more forcefully, the wording could torpedo the healthy IPO it had put so much work into (indeed, the CFO had been preparing for the IPO for at least a year).

Facebook bear Sam Hamadeh

This is interpretation taken by Sam Hamadeh, chief executive of PrivCo, a company that issues research about private companies. He says Facebook should have been clearer about the shift to mobile users, and tried to quantify the potential revenue in some way. Instead, he says, Facebook executives — led by Sheryl Sandberg and David Ebersman — initially appeared during the roadshow to blame the first quarter drop mostly on seasonal trends, and he bases this on sources he’s talked with who were present during the roadshow. He takes the skeptical view, which is that Facebook executives buckled under the pressure, and decided to try to sweep the seriousness of the mobile ad revenue situation under the rug, at least when it came to the S-1. It’s true that Hamadeh has been consistently bearish on Facebook, almost predictably so, and so it’s important to keep in mind he presents just one view.

Whether or not this is true — that Facebook decided to say the bare minimum because it feared the consequences of doing otherwise — it’s the events that followed that made Facebook’s fumble on May 9 look so devastating.

The subsequent analyst downgrades — and the realization that mobile problems were bigger than expected — suddenly shed a new light on a series of previous Facebook actions on the mobile front. And this light doesn’t make Facebook look so good.

Huh, Facebook was really obsessed with mobile

Instagram, for example. Back on April 9, already in the second quarter, Facebook announced a deal to acquire mobile photo-sharing site Instagram for $1 billion. Reports emerged afterward documenting that Zuckerberg had moved to seal the deal in a matter of days — almost unprecedented speed. Could this have been driven by panic reaction to internal metrics? The motivation driving the Instagram purchase is relevant because the site is so important in mobile. Facebook clearly had seen its own mobile usage growing quickly, and in particular had noticed Instagram’s mobile photo-sharing usage becoming a bigger and bigger portion of all stories posted on Facebook. This tied directly into the negative mobile trend in revenues, since photos are so hard to monetize with ads.

And then there’s the Facebook acquisition of AOL mobile patents that came on April 23 for $550 million. Was this another panicked move, driven by a growing mobile problem, the seriousness of which only Facebook was aware of?

That’s just the beginning. There are more questions than answers raised by the timeline released by PrivCo’s Hamadeh Tuesday evening on this site (scroll down).

So why did Facebook become so bullish?

Now forward-wind to Wednesday, May 16, two days before the IPO. Facebook chose to increase the IPO share offering by 25 percent. These 83.8 million extra shares came from insiders, including folks like Peter Thiel and Jim Breyer, who are on Facebook’s board, and who are almost definitely privy to the company’s true financial position. The two more than doubled the number of shares they intended to sell. The private equity arm of Goldman Sachs, one of the lead underwriters, doubled the number of shares it offered for sale. Of course, no intent can be drawn from these actions alone. There may be other reasons they chose to release the extra shares. But it looks really bad given that Facebook executives now knew that most U.S. investors weren’t fully privy to Facebook’s real, downgraded revenue outlook.

“This stinks to high heaven,” says Hamadeh, of the extra share allotment.

Facebook also set the number of shares it planned to offer to normal mom-and-pop investors — known as retail investors — to about 25 percent, much higher than is normal for IPOs. The cap was also raised for individual investors, so that they could now own 5,000 shares, up from 500 shares.

Finally, Facebook CFO Ebersman decided to set the price of the IPO at $38, at the very top of the price range, which itself had already been increased from an earlier range. This, even though Morgan Stanley has since made statements that the $38 price took into account the lower revenue guidance data.

Confused? You should be. The underwriting banks and Facebook have stayed mum on further commentary.

The big fall

The rest of the story is known: Since trading started Friday, Facebook’s shares have fallen hard. They opened at $42, and then fell and have languished in the low $30’s. Facebook shares closed at $33 yesterday, and they’re down again today, at around $31.50. Facebook had misjudged demand, and it now has a lot of angry investors. Facebook faces multiple investigations and lawsuits. Investors filed suit Wednesday in Manhattan federal court and in San Mateo county superior court in California, alleging that the company and underwriters failed to properly disclose changes to analysts forecasts made at the underwriting banks. Facebook faces claims that could be at least $1 billion or more.

To add insult to injury, as less-privileged investors complained about their investments going south, it emerged Wednesday that the main underwriting banks made $100 million in trades from the IPO, over and above the $176 million fee they charged for the process.

Facebook declined to comment for this story.

Yes, the legal process around IPOs is incredibly frustrating, and urgently needs to be looked at closely for ways to be reformed. But it’s also clear Facebook should have been more forthcoming about its real financial fundamentals. If it had, it could have avoided this mess.

[Chart image credit: Yahoo; Mood image: Kevin Dooley, Flickr]

Senator Chuck Schumer (D-N.Y.) hijacked the senate floor today to address critics of his recently proposed Ex-PATRIOT act legislation, which would impose new taxes on people who give up their U.S. citizenship to avoid taxes and bar them from re-entering the country.

Schumer, along with Sen. Bob Casey (D-Pa.), introduced the Ex-PATRIOT act (Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy Act) last week after the public had caught wind of Facebook co-founder Eduardo Saverin’s decision to renounce his citizenship. The move ended up saving Saverin an estimated $100 million.

“When you renounce your citizenship to swell your bank account, you’re un-American,” Schumer said. “What Saverin is doing is free-riding on America, and dodging taxes from an IPO.”

The Senator also called out the Wall Street Journal for labeling him a vocal spokesperson in the “age of envy”, and scalded republican opponents of his legislation, saying “they make Eduardo Saverin into their patron saint.”

Honestly, I don’t think Saverin would argue with being called “un-American,” considering that he didn’t feel compelled to continue being a citizen. And while I agree that having the ultra rich dodge taxes is a bad thing for the country, Schumer’s plan for handling this situation is utterly awful.

Under the proposed bill, expatriates with either a net worth of $2 million or an average income tax liability of at least $148,000 (over the last five years) will be presumed to have renounced their citizenship for tax avoidance purposes. Any person who fits this description does have a chance to appeal to the IRS to prove they aren’t just dodging taxes. Anyone who the IRS determines was indeed dodging taxes by renouncing citizenship will be slapped with a new tax on all future investment gains — no matter where he or she resides. The senators said this stipulation would eliminate any tax benefit/financial incentive associated with renouncing one’s citizenship. Also, the rate of the new capital gains tax will be 30 percent, which is consistent with the current rate applied on non-resident aliens for dividends and interest earnings.

So to summarize, Schumer wants to tax people who give up their citizenship as if they were still citizens. And if they refuse to pay these taxes, they can’t come back into the country.

I highly doubt this is going to prevent people from giving up their citizenship. I do, however, think the Ex-PATRIOT act (if passed into law) would end up driving investment into Europe and Asia in the long run.

Please feel free to sound off with your own thoughts in the comment section.

Photo via Sen. Schumer/ Flickr

Add the House and the Senate to the growing list of parties with serious questions and concerns about how Facebook, its underwriters, and the NASDAQ handled the most anticipated initial public offering in recent history.

Both the Senate Banking Committee and the House Committee on Financial Services are now officially looking into issues surrounding the Facebook IPO. The committees will be conducting briefings with all involved parties, spokespeople confirmed in statements to Reuters.

The committees have yet to schedule hearings or publicly state what specific issues are under review, but we suspect they’re especially curious about whether Facebook and its underwriters violated securities law in the run-up to its offering, as has been alleged in a shareholder class action lawsuit.

“Effective capital markets require transparency and accountability, not one set of rules for insiders and another for the rest of us,” Senate Banking Committee member Sherrod Brown said in a statement. “There’s a lot that we don’t know about this IPO, but a lot that we do. We know that the SEC must fully investigate and take appropriate action if it discovers any violations.”

The Financial Industry Regulatory Authority and the Securities and Exchange Commission said Tuesday that they will review allegations of impropriety around Facebook’s IPO.

The congressional inquiries follow a tumultuous week for Facebook, which saw its share price plummet on Monday and Tuesday and only rebound slightly on Wednesday to close at $32. To make matters worse, as Wall Street shows signs of uncertainty about the company’s future, Facebook shareholders are more than a little disgruntled about being left out of the revised earnings estimate loop. They’ve filed a class action lawsuit against the social network and its underwriters for allegedly disclosing material information to select investors.

Facebook declined to comment on this story.

Photo credit: f-l-e-x/Flickr

The bungled handling of Facebook’s initial public offering by NASDAQ may have left the door open for a rival suitor to win over the newest technology company on the market.

The New York Stock Exchange (NYSE) is using Facebook’s NASDAQ opening day debacle — trading was delayed by 30 minutes as the NASDAQ’s electronic system faltered under demand — as a potential in with the Menlo Park-based company, according to various reports.

The NYSE has made “soft overtures” behind the scenes in an attempt to get Facebook to change its listing, Fox Business News reporter Charles Gasparino reported Wednesday.

“NYSE makes ‘soft’ pitch to Facebook to switch listing venue,” Gasparino first tweeted. “NYSE confirms FBN report that NYSE has made soft pitch to Fb regarding listing,” he tweeted later.

Several other media outlets, including CNBC, Reuters, and Bloomberg are running similar stories and are suggesting that Facebook may be looking to transfer its listing, though CNBC backpedaled a bit on its original story. “BREAKING NEWS: @BobPisani reports the NYSE has had ‘no discussions with Facebook’ on potential listing switch,” the CNBC Twitter account tweeted.

A jump from one exchange to the other is not wholly unusual on Wall Street, though most companies tend to stay put. The NYSE recently won over TD Ameritrade, which had been listed on the NASDAQ since its 1997 IPO. The dueling exchanges have been known to compete aggressively for significant listings, especially in the technology sector.

In a Fox Business News broadcast Wednesday, Gasparino said that the NYSE knows that its chances of convincing Facebook to move its listing are slim. Gasparino added that the NYSE is more aggressively going after social gaming company Zynga.

After a market thrashing on Monday and Tuesday, Facebook rebounded a smidgen Wednesday to close at $32 a share. The social network opened on the NASDAQ at $42 a share. The company and its underwriters are being sued by shareholders for allegedly passing along severe revised earnings estimates to select investors.

Facebook declined to comment. When reached for comment, a NASDAQ spokesperson did not provide a statement for this story.

Photo credit: Larimdame/Flickr

In the convoluted case of the botched Facebook IPO, the story goes that the social network’s underwriters, with guidance from a Facebook executive, reduced their 2012 earnings estimates, shared that material information with a few, preferred investors, and let institutional and retail investors take the hit as Facebook’s stock value tanked.

So about those revisions to Facebook’s earnings estimates — just how bad are they? Pretty disconcerting, if you ask financial data company PrivCo CEO Sam Hamadeh. “These are enormously material changes in financial forecasts.”

According to the projected numbers of four banks, as shared with Reuters by an anonymous investor, Facebook could report 5.45 to 7.28 percent less revenue in the second quarter of 2012 and 3.61 to 6.13 percent less revenue for the full year than originally anticipated. The underwriters also reportedly reduced Facebook’s 2013 earnings per share estimates by has much as 7.35 percent.

The reduced figures, as shown in the table below, dramatically change the valuation of the company, Hamadeh said.

“The reduction to Facebook’s forecasts of this magnitude — reducing the revenue growth rate by over 6 percentage points — is so material that it should absolutely have been disclosed in a revised S-1 filing before the IPO pricing,” he said. “The combined net effect for Facebook in this case of both the reduction in the financials and the valuation multiple would have lowered Facebook’s valuation by at least one third.”

Facebook did file a revised S-1 on May 9, which spelled out that mobile was an even greater risk than originally stated. However, that warning, which stated that Facebook’s daily active users (DAUs) on mobile are increasing more rapidly than the number of ads it delivers, did not come with Q2 2012 or full year 2012 earnings estimates.

Morgan Stanley’s original full year 2012 revenue projection for Facebook was $5.036 billion, according to the Reuters report, or 35.74 percent year-over-year growth. By changing its forecast to $4.854 billion, the underwriter is predicting that Facebook will only grow revenue by 30.84 percent this year, which changes the perceived value of the company and the share price at which investors would be comfortable buying Facebook stock.

For comparison, Facebook’s revenue grew 88 percent year-over-year to $3.71 billion in 2011.

Bottom line? The accusation is that Morgan Stanley, Bank of America, JPMorgan, and Goldman Sachs shared their revenue revisions with their top investors, but regular institutional investors and retail investors weren’t provided with the additional guidance. Instead, these folks were left with Facebook’s May 9 S-1 amendment, which was woefully short on hard data.

Now, the legal question at hand is whether Facebook hid “a severe and pronounced reduction” in revenue from investors. For its part, Morgan Stanley is standing by its actions. A spokesperson said the following in a statement shared with VentureBeat:

Morgan Stanley followed the same procedures for the Facebook offering that it follows for all IPOs. These procedures are in compliance with all applicable regulations.

After Facebook released a revised S-1 filing on May 9th providing additional guidance with respect to business trends, a copy of the amendment was forwarded to all of MS’s institutional and retail investors and the amendment was widely publicized in the press at the time.

In response to the information about business trends, a significant number of research analysts in the syndicate who were participating in investor education reduced their earnings views to reflect their estimate of the impact of the new information. These revised views were taken into account in the pricing of the IPO.

Facebook publicly reported that it made $205 million in net income on $1.06 billion in the first quarter of 2012. The social network’s pre-IPO earnings report was a disappointment considering that it brought in 6 percent less revenue than it did in the previous quarter.

Facebook closed at $32 a share on the NASDAQ Wednesday, which is up from Tuesday’s close but down almost 16 percent from its $38 starting price and nearly 24 percent off its $42 opening.

Facebook declined to comment on this story.

Facebook shareholders have filed a class action lawsuit against the social network, as well as underwriting banks including Morgan Stanley, over its first-day trading slide, the law firm Robbins Geller Rudman & Dowd announced this morning.

The suit alleges that Facebook hid “a severe and pronounced  reduction” in revenue forecasts from its investors, due to a more widespread use of Facebook via mobile devices. Yesterday, Reuters reported that some investors were shocked when lead underwriter Morgan Stanley reduced its revenue forecasts of the company shortly before Facebook’s IPO, supposedly following an amendment to its S-1 filing on May 9 over increased mobile risk.

Even more scandalous, Business Insider’s Henry Blodget reported last night that a Facebook executive actually told the underwriting banks to cut their estimates, but didn’t share that information with smaller investors. If true, Facebook could be on the hook for violating securities laws.

The situation is admittedly confusing, because Facebook’s amended S-1 was quite pessimistic about revenues from mobile devices, as we reported at the time. Since the S-1 is a public document, it’s hard to argue that Facebook was hiding anything, unless it was privately giving different information to the underwriters.

That’s exactly what the complaint alleges: That Facebook was giving even more pessimistic revenue guidance to its underwriters.

“The true facts at the time of the IPO were that Facebook was then experiencing a severe and pronounced reduction in revenue growth due to an increase of users of its Facebook app or website through mobile devices … such that the Company told the Underwriter Defendants to materially lower their revenue forecasts for 2012,” the complaint reads.

The underwriters then subsequently lowered their estimates for 2012, “which revisions were material information which was not shared with all Facebook investors, but rather, was selectively disclosed by defendants to certain preferred investors.” That’s exactly how an IPO process is not supposed to work.

Meanwhile, those same underwriters earned a bonus $100 million last week by selling their extra allotment of shares in order to stabilize the price on the IPO day, an option known as the “greenshoe.” How does that work? Essentially by shorting the stock, as Reuters writer Felix Salmon explains in a lucid post on the Facebook greenshoe.

Separately, the NASDAQ has admitted that it had trouble processing all the orders for Facebook shares, delaying the opening of trading by about half an hour. That glitch has bankers hopping mad, and at least one has even sued NASDAQ over the delays.

The suit was filed in in a Manhattan U.S. District Court this morning, and it comes on the heels of a suit filed yesterday in California as well as a subpoena filed in Massachusetts yesterday. We’ve asked Facebook for further comment and will report if we hear back. Find the full complaint below.

Via Reuters; Photo via Facebook

Nasdaq took a lot of heat for computer problems that negatively affected the Facebook IPO. Trading didn’t start on Friday May 18 until 11:30 am EDT, because the computers that run the Nasdaq couldn’t process the large volume of trades.

Nasdaq chief exec Robert Greifeld told reporters Sunday that the exchange was at fault for trading problems during the IPO. The computer system backup led to traders not know if their orders went through for hours and many times, they found out too late that shares weren’t available at the price they wanted. Greifeld also said Sunday that the Nasdaq wasn’t responsible for any losses that happened due to computer errors. Now it seems the exchange is changing its tune.

Thirteen million might not be enough to fix the situation though. It’s estimated that investment firms lost $100 million, according to the Wall Street Journal. Because it would take a long time to investigate each loss recorded by every investor, Nasdaq is hoping to make amends now and put this mess behind it.

Of the $13 million, $10 million will come from proceeds Nasdaq earned when it acquired and sold Facebook shares while trying to work out computer delays and glitches. Security exchange rules mandate that Nasdaq can only pay out $3 million in one calendar month. The SEC will have to approve the decision before it can move forward with its plan.

Facebook’s shares tumbled this morning to a low of $33.01, well below the company’s initial price of $38 on Friday.

Pre-market trading of Facebook’s stock was already below $38, reports USA Today, but it quickly sank to $33 within the first hour of trading. At the time of this post, the stock was hovering around $33.86 with a market cap of $91.54 billion (down from its initial $104 billion valuation last week).

The company’s stock began trading at $42 last Friday, but didn’t explode like many were expecting (Nasdaq’s errors didn’t help), which led to a surprising ricochet effect with other big tech stocks. By the end of the day, the company’s stock sat at $38.23. Facebook was both criticized and praised for the stock’s performance — one camp saw the lack of a pop as a weakness, while others argued that the stock was priced perfectly.

However you frame it, there’s no doubt that Facebook’s stock will be annoyingly scrutinized for some time to come.

Images: Top via Facebook, below via Google Analytics

Nasdaq chief exec Robert Greifeld admitted Sunday that the exchange was at fault for some glitches in early trading of Facebook’s IPO but said it had nothing to do with the stock’s uninspired performance.

Social networking service Facebook went public Friday with the largest tech IPO in history. Facebook expected trading to begin at 11 a.m. ET, but it did not begin until about 11:30 a.m. The stock did not “pop” in early trading and ended up disappointing many analysts and social media enthusiasts by closing 9.5 percent down from its $42 opening price and just barely above its $38 original IPO price.

Greifeld told a handful of reporters Sunday that the Nasdaq’s systems got backed up because there were quite a few order cancellations that came in late in the IPO process. In turn, the entire system was backed up and did not let some traders know their orders went through until after 2:30 p.m., according to the New York Times.

The New York Times reports Greifeld said the exchange was “humbly embarrassed” about the delay in confirmations, but that it was not responsible for losses incurred by trading. Charlie Gasparino at Fox Business says angry traders are demanding that Nasdaq repay them for “$100 million or possibly more.”

At the least, the SEC plans to look into the Nasdaq trading debacle.

Read more about Facebook:

• Facebook hit with $15B class-action suit over user privacy
• Would Facebook’s IPO have been bigger if it went with New York Stock Exchange?
• Do not despair: Facebook revenue — and its share price — are just at the beginning
• Facebook sets $38 share price for largest tech IPO in U.S. history
• Facebook’s all-night hackathon kicks off with standing ovation for CEO
• Facebook’s world takeover by the numbers

As if Facebook CEO Mark Zuckerberg wasn’t busy enough readying his company to go public this past week, he also somehow found time to marry long-time sweetheart Priscilla Chan yesterday.

Social networking titan Facebook went public Friday in the largest tech IPO in history. While the stock disappointed many analysts and social media enthusiasts by closing 9.5 percent down from its opening price, it still remained above the original offering price of $38 a share. Now Facebook will face a new level of scrutiny as it continues monetize its 900-million-strong user base.

But even with all the Facebook IPO madness, Zuckerberg and Chan got married yesterday at Zuckerberg’s home in Palo Alto, Calif. The couple was surrounded by 100 guests who thought they were there to attend a party for Chan’s graduation from University of California’s medical school. Instead of a hoodie, Zuckerberg dressed in a slick suit and tie, while Chan wore a white wedding dress.

A guest of the wedding claims that the couple had always planned to get married right after Chan finished medical school and the timing with the IPO was coincidental, according to the Associated Press. Zuckerberg gave Chan a ring he had made with a “simple ruby” although he could have easily bought her one of the world’s most expensive diamond rings if he wanted.

We wish Zuckerberg the best on his journey with his lovely new wife. While he may not be able to fix any future relationship problems with an all-night hackathon or an algorithm change, we’re sure he’ll figure it out. Congrats Zuck!

Read more about Facebook:

• Facebook hit with $15B class-action suit over user privacy
• Would Facebook’s IPO have been bigger if it went with New York Stock Exchange?
• Do not despair: Facebook revenue — and its share price — are just at the beginning
• Facebook sets $38 share price for largest tech IPO in U.S. history
• Facebook’s all-night hackathon kicks off with standing ovation for CEO
• Facebook’s world takeover by the numbers

By now you know that Facebook’s stock didn’t pop in its first day of trading, closing the day at $38.06. Reports emerged yesterday that trading didn’t begin until 11:30 EDT because of computer glitches on the NASDAQ. Investors were left waiting for computer confirmation on their orders and the price they paid for the stock. The NASDAQ’s automated system relies completely on computers that are supposed to be faster and more efficient than human traders.

On the New York Stock Exchange computers run the show as well, but human traders work as a backup. If the computers slow down or crash, real people keep the trading going and can tell you immediately the status of your order and the price of your stock.

Keith Bliss from Cuttone & Co. explained the human trading system on the NYSE in an interview with Bloomberg:

“There is no redundancy inside their (the NASDAQ) market so they’re solely dependent on the computers being able to handle…what’s happening not only inside of the market, but also inside an IPO. Down here on the New York Stock Exchange, we have redundant systems and the redundant systems are the human-based traders who can have an open outcry auction market. If the systems go down, we can get the stock open and get orders into the market, they can execute them and can give you a report immediately.”

In Silicon Valley, we keep hearing that computers are getting closer to replacing humans as processors get more powerful. Researchers are continuing to work towards the singularity, in which we create computers that are smarter than humans (and probably more powerful too — cue a robot uprising).

While it will be decades, if not hundreds of years, before a computer has even close to processing power of the human brain, leaders in the industry are praising computers as faster and smarter than human beings. It’s ironic then that the largest tech IPO in U.S. history may have been hurt by computer-based system.

Do you think if Facebook had chosen the New York Stock Exchange for its IPO that it would have done better? Answer the poll and sound off in the comments.

Hoo boy, anything tech-related that happened over this past week was dwarfed into oblivion by Facebook’s IPO.

Many of us were expecting a glorious event with massive profits for early shareholders, but the day’s events ended in disappointment.

The stock closed at just over $38 — exactly Facebook’s original offering price. In fact, NASDAQ revealed that the deal’s underwriters had to make supporting bids to keep the price from dipping below the $38 mark.

Also, unexpectedly low figures for Facebook’s share price led to a price slump for other tech stocks, as well. Zynga had a NASDAQ-mandated halt in trading not once but twice during the day when it fell by more than 10 percent.

“Ouch” doesn’t begin to cover it.

Still, there’s hope. We’re just at the beginning, and the mainstream market’s lack of faith in Facebook doesn’t necessarily mean that we’re heading for another dotcom-esque bust. My mom said so.

Before Friday, almost every Silicon Valley insider was saying Facebook stock would finish its first day between $50 and $60 per share.

In reality, the share price at the closing bell was a pathetic $38.37.

How were these masters of the universe — some of them the most powerful investors on the West Coast — so woefully inaccurate in their predictions?

Facebook closing price predictions were coming in fast and furious over the past several weeks, but as Facebook’s pre-trading pop fizzled, estimates dwindled lower and lower.

Still, few thought the price would dip as low as it did — almost a full $4 below the $42 opening price and just 37 cents higher than Facebook’s offering price.

Here’s a graph we made to name and shame (just kidding … sorta) those who aimed way, way too high on Facebook’s value in the open market.

If you don’t recognize the last names, you probably don’t have your head deep enough inside the navel of startup culture, in which case, good for you! If you’re still curious, they are, from left to right:

• Lars Hinrichs, Xing founder, predicting $45
• Michael Yavonditte, FF Ventures partner, $49
• Chris Dixon, angel investor, $50
• Josh Felser, Freestyle Capital founder, $50
• Shakil Khan, Spotify investor, $50
• Jason Calacanis, serial entrepreneur and investor, $52
• Chris Sacca, Lowercase Capital founder, $56
• Josh Kopelman, First Round partner, $57
• Ryan Sarver, Twitter dev guru, not an actual investor, $60
• Shervin Pishevar, Menlo Ventures partner, $63

Interestingly, in the week before the IPO, all the Wall Street analyst types we talked to were not nearly as optimistic as their tech-obsessed counterparts on the West Coast. As the opening bell rang, we published their conservative estimates — low $40s, maybe $44 by the end of the year.

Of all the Valley dudes and dudettes we called, however, only one man gave an accurate estimate of Facebook’s closing price. Ladies and gentlemen, the winner of this guess-how-many-jellybeans-are-in-Facebook’s-jar contest is … Menlo Ventures managing director Mark Siegel!

Siegel told us the day before the IPO that he thought the company’s $38 asking price “certainly fully values the company based on today’s financial metrics. I think they know how oversubscribed their book is, but I don’t think it’s going to leave too much money on the table.”

When we floated the $60 figure by him, he practically snurffled his coffee in surprise, saying there was “no way, not a chance” Facebook’s numbers would get that high any time within the next year or so.

Siegel bought his Facebook shares today, as did fellow Menlo Ventures VC Shervin Pishevar (who guessed $63) and Chris Sacca of Lowercase Capital (who guessed $56).

But for those of you who didn’t hit your closing-price target Friday, don’t dismay. Facebook still has a long way to go, and we’re just at the beginning in almost every way.

So, Facebook is now public, and it got off to the most unimaginable and inauspicious start, losing $4 between the NASDAQ’s opening and closing bells.

But don’t go jumping out any windows just yet.

There’s no question that the IPO defied expectations in the worst way possible (well, perhaps not the worst), offering at $38 and closing just a few cents higher at $38.37. Even our more conservative sources thought trading would close in the low $40s.

But while the numbers are, as one candid entrepreneur expressed it, “a total crapshoot,” almost everyone we spoke to was quick to point out that both Facebook’s revenues and its stock price are still very much in their infancy.

“This is an eight-year-old company,” pointed out Rebecca Lieb, an Altimeter Group analyst. “When Google went public, they had only recently developed ad products. Facebook is at the beginning of mobile products, advertising products — and it hasn’t even started with commerce products.”

“Facebook has just scratched the surface of its revenue and advertising,” said Menlo Ventures managing director Mark Siegel. “They’re going to grow with a much more diverse income stream than what they have today.”

Siegel, who bought shares today and said he plans to hang onto them, concluded, “I think Facebook is a good long-term investment.”

Facebook’s shaky standing with advertisers has been troubling, especially as one high-profile advertiser packed up and went home just days before the IPO.

This move and related stats prompted highly unfavorable statements from experts. For example, Pace University marketing professor Larry Chiagouris said, “The Facebook IPO is … likely to be a disappointment to all the new investors. This is because its real financial value is tied to its marketing value, and the marketing community is increasingly recognizing that Facebook is of very limited value as a marketing tactic.”

But Lieb said a lot of the angst around Facebook’s ad performance has to do with the fact that agencies and marketers are still figuring out how to use Facebook’s tools.

“It’s a completely different form of online advertising,” Lieb said, stating that Google’s ad network had previously defined a search-based paradigm for online advertising. But as we shift from search-based online behavior to social networking, she said, “Advertisers still have to figure out how to work in these environments. It’s not just about a display ad.

“It’s a brand new form of advertising and marketing, but I don’t think it’s at all mature yet,” the analyst concluded.

While advertisers need to do better at making Facebook marketing work, Facebook needs to do better at indicating to brands, investors, and the public where its revenue is going to come from.

“Facebook will crash and burn unless the company can better communicate where it is going with its business,” said investor relations communications expert Jeff Corbin. “The people who will suffer will be those caught up in the frenzy and purchase Facebook stock [today] at what will probably be a high.”

Still, every social media expert between here and Timbuktu has come forward with thoughtful and creative ways for Facebook to make money. All Facebook has to do now is figure out how to capitalize on at least one of them without compromising users’ data and privacy, thus losing the userbase that makes Facebook value in the first place.

“Facebook is a highly creative and deeply resourced company that has the potential to develop wonderful products,” said Lieb.

“Are they gonna do it? We hope so.”

In addition to being one of the largest initial public offerings ever, Facebook’s IPO drew so much interest that the system couldn’t keep up with demand.

Facebook expected to make its public debut at 8 a.m. PT this morning, but trading took an extra half-hour to get underway. While details weren’t provided, Bloomberg was able to confirm that NASDAQ was experiencing a delay.

The Wall Street Journal reported that traders were unable to confirm changes or cancellations made to Facebook orders as early as 4:30 a.m. PT. Once trading did begin, traders were unable to get a confirmation on if they got the stock at the intended price. These glitches ended up putting the social network giant’s stock price into a slump, which caused a sinking reaction among other tech stocks.

It’s possible the glitches were due to the extremely large volume of trades — over 460 million shares traded (with nearly half of those happening within the first two hours). NASDAQ was unavailable for comment about the glitches at the time of publication.

So lets recap: Facebook’s IPO was one of the largest ever, generated so much activity the system couldn’t keep up, and caused other industry stocks to mimic its behavior. However, all that demand didn’t translate to a great first day for the stock, which closed at $38.06, down $4 from where it opened.

But the company’s largest stakeholder and chief executive showing up to the bell ringing in a hoodie rather than stuffy business attire? That was no big deal. (To test this theory, Twitter’s largest shareholders should wear Jedi robes and plastic light sabers when it goes public.)

Photo via NASDAQ live feed video

Leave it up to Next Media Animation, the Taiwanese firm known for its wacky news videos, to create the only Facebook IPO wrap-up that’s actually worth watching.

Sure, this Facebook wrap-up features a dead-eyed Zuckerberg riding the Wall Street bull and mowing down investors, but hey, at least they got the numbers right. As a bonus, you can also see Google’s co-founders taking a ride on a space elevator.

Facebook opened up trading at $42 this morning after pricing its stock at $38 last night. The stock didn’t go up much throughout the day, and it slowly fell to just $38.06 by the end of trading today. That didn’t surprise Wall Street analysts, as we’ve reported, but it may have come as a shock to Silicon Valley insiders who expected the stock to blow up today.