Read This Now: The Real Winners From the Facebook IPO

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Now that the dust has started to settle following the Facebook (Nasdaq: FB  ) IPO, it's becoming clear who the real winners are.

What's also clear at this point is who did not come out well from this whole debacle. Let's take a closer look.

The bankers
Facebook's banking team was a Who's Who of Wall Street banks -- from Bank of America's (NYSE: BAC  ) Merrill Lynch to the much smaller specialty shop Allen & Co. But the lead banks on the deal were Morgan Stanley (NYSE: MS  ) , JPMorgan Chase, and Goldman Sachs.

Frankly I think MS et al. did a good job pricing the IPO -- after all, Facebook was the client, and it was the bankers' job to get the highest price possible for the shares they were selling. So well done there.

However, the blowback from the IPO and the stock's post-IPO decline -- not to mention the allegations that MS selectively disclosed important information about Facebook -- is a PR nightmare. Whether potential future banking clients will be swayed by that is up for discussion. But how about investment management clients at Morgan Stanley Smith Barney? There was a healthy allocation of Facebook shares for non-institutional investors, and they may not forgive and forget too quickly.

Mark Zuckerberg and the company
Sure, Facebook and insider sellers -- including Mark Zuckerberg -- did well from the perspective that the bankers got them a nosebleed price for the shares they sold. This is particularly notable when you consider the huge post-IPO price pops from LinkedIn (Nasdaq: LNKD  ) and Yelp (NYSE: YELP  ) , which suggested there was opportunity for the bankers to get those companies far more money.

But the aftermath isn't working out well for Facebook at all.

I think Felix Salmon put it well last week when referring to why this blowback is no good for Zuck and Co.:

Here's the main reason why Zuckerberg wanted an opening-day IPO pop of at least modest proportions: the last thing he wants or needs is an adversarial relationship with his shareholders. Zuckerberg got to where he is today with the help of extremely supportive shareholders, who were happy to give him as much money as he wanted to build his company and take it to where it is today, without second-guessing any of his decisions.

In the wake of the IPO, it seems unlikely that "friendly" and "supportive" are words that would accurately describe Facebook shareholders' relationship to the company. At least for a while.

Beyond that, if investors turn their rabid excitement to white-hot hatred and avoid the shares simply because they're ticked off, that could mean a depressed price that will give Facebook and its insiders less lucrative future opportunities to sell shares.

I'm not going to belabor this obvious point -- Nasdaq OMX Group was a very obvious loser here. The opening-day trading was botched, and while long-term investors may not give a hoot about that, it was a serious fluff-up for Nasdaq nonetheless. There has even been talk that Facebook may jump ship and consider a listing on NYSE Euronext's New York Stock Exchange.

Institutional investors
If the rumors are true that Morgan Stanley tipped off its big institutional clients, then it could be that some mutual funds and hedge funds scored a win by cancelling their IPO orders. But for those that did jump in on the IPO, there's no touchdown dance here. For the funds that have gotten complacent and automatically assume that an exciting IPO is going to mean quick, easy profits for them, Facebook was an ice-cold bucket of water in the face.

Retail investors
To a large extent, the blame for retail investors losing on Facebook does lie with those buyers. As Registered Rep. noted before the IPO, Morgan Stanley clients "had been clamoring for shares ever since the IPO was announced" and there was no dearth of appetite for shares when Facebook pushed to expand the allocation to retail investors.

Of course, the perception of individual investors "losing" does depend on your view of Facebook's shares' real worth. The price of Facebook's shares is down around 25% from the IPO price, but price volatility in the stock market doesn't necessarily equate to changes in the underlying company's value. For investors who truly thought the company was worth $38 or more, well, they still own shares in that same company.

Of course, I don't think Facebook's shares are worth nearly $38. And I don't think many investors who bum-rushed the shares gave valuation any serious thought.

The media
Winner ... winner ... chicken dinner.

The media kicked butt with the Facebook IPO. It was an absolute bonanza. Did most of the media coverage help readers? Heck, no! In fact, most of it probably did a lot more to hurt readers.

But guess what? The media business model -- and this varies a bit depending on where you're reading -- is to grab eyeballs and ears, notmake sure that investors are making the best possible decisions (though it's nice when the two intersect). For that purpose, the Facebook IPO was spectacular. Readers couldn't get enough of it in the lead-up to the IPO, during the fracas around the IPO, and in the IPO's aftermath.

At the risk of having tar and feathers head my way, I'll state the obvious: You're reading this right now, right?

Many folks want to point the finger at Wall Street on this one, and while I'm fond of a good Wall Street shin-kicking as much as the next guy, if you're blaming the bankers, you're looking in the wrong direction.

Media outlets are often very useful in keeping readers informed, educated, and up to date. But because of the incentives of the business, the media has a bad habit of encouraging investors to excitedly run up to and off some very gnarly cliffs.

And for this serial offender, the Facebook fiasco is hardly a first.

Ready to break free of the Facebook hoopla? Check out a recent IPO that one Motley Fool analyst thinks is a much better bet.

The Motley Fool owns shares of JPMorgan Chase, Facebook, LinkedIn, and Bank of America. Motley Fool newsletter services have recommended buying shares of The Goldman Sachs Group, LinkedIn, and NYSE Euronext. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Matt Koppenheffer owns shares of Morgan Stanley and Bank of America but has no financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter, @KoppTheFool, or on Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1898970, ~/Articles/ArticleHandler.aspx, 10/26/2016 11:05:16 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 hour ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:00 PM
BAC $16.87 Up +0.15 +0.90%
Bank of America CAPS Rating: ****
FB $131.04 Down -1.25 -0.94%
Facebook CAPS Rating: ***
MS $33.59 Up +0.24 +0.72%
Morgan Stanley CAPS Rating: ****
YELP $33.49 Down -0.46 -1.35%
Yelp CAPS Rating: **