Special Coverage of Facebook's IPO; Facebook's Failure To Launch
ALI VELSHI, CNN ANCHOR: Welcome to our special coverage of Facebook. I'm Ali Velshi.</s>CHRISTINE ROMANS, CNN ANCHOR: And I'm Christine Romans. Facebook. It's the most anticipated tech stock in history. A company that represents a new paradigm shift on the web. But for all the hype and for all of that anticipation, Facebook's stock debut today came out with a bang before retreating with a whimper. I've been calling it a fizzle.</s>VELSHI: And that's where it is now. In the next 20 minutes of trading, we're going to cover the story of Facebook's first trading day as only CNN can. Alison Kosik at the Nasdaq, where Facebook's stock has just momentarily dipped below the IPO price of $38 and it is now just a few cents higher than it right now. All the other social media stocks are down with it. Felicia Taylor is live on the floor of the New York Stock Exchange. She's been talking to traders all day. Dan Simon is at Facebook headquarters in Menlo Park, California, where thousands turned out to see Mark Zuckerberg remotely ring Nasdaq's opening bell and turn a page in history. And from Boston, Ned Riley, who was nervous from the start about all the attention Facebook was getting and he does this for a living. We'll get to all of you in a second. Christine, this is largely -- it's not impossible that a stock doesn't go up on the first day of the IPO, but on one of the most talked-about stocks and IPOs of all time.</s>ROMANS: It certainly is a -- it certainly is a surprise. And there was a lot of concern that small investors were going to jump in here and then get in the way of a runaway freight train. And this has not been a runaway freight train.</s>VELSHI: Right.</s>ROMANS: You could almost argue that maybe it's been priced perfectly, quite frankly, because the stock came out, debuted at $38 and right now it's unchanged $38.01. We'll see in the next 20 minutes exactly what happens. But there's 400 million shares of stock trading today that wasn't available the day before. And this is the market process that.</s>VELSHI: It's accelerating right now. So keep in mind, Microsoft, on a given day, might trade 50 million shares. Apple, a very heavily traded stock, might trade 25 million.</s>ROMANS: Right.</s>VELSHI: We're probably at about 500 million shares trading hands. And that caused a major, major problem at the start of trade and all through the trading day. Alison Kosik is at the Nasdaq MarketSite. That is where this stock is listed. Nothing but trouble for much of the day when it came to trading, Alison.</s>ALISON KOSIK, CNN CORRESPONDENT: Oh, you said it, a messy debut for Facebook. As you can see, shares are flat. We are seemingly ending the day where we began, that "unchanged" word sitting there on the board behind me. You know, but it was a mix of -- it was a mix of technical difficulties here at the Nasdaq and lackluster demand. And that bled over to other social networking stocks, including Zynga. Zynga shares actually were halted during trading today because so many people sold those shares so fast. Zynga shares down 13 percent right now. Others shares down as well. Yelp down 10 percent. Pandora down 5 percent. Groupon down 8 percent. And Linkedin shares down 6 percent. This is -- usually you see this happening when a strong company in one of these sort of sectors doesn't do as good as planned. You see these other shares that are sort of in this same realm fall like that. But, you know what, one analyst says, you know what, the overall long-term trend for these social networking sites, for some of them at least, it is positive. Analysts say, you know what, people are using social media. Advertisers are spending money even though GM pulled out of its advertising on Facebook. So there are advertisements. People are spending money. And they are using those social networking sites. And not every social networking site does as good as the next. And one day of trading, by the way, Ali, before I throw it back to you -- one day of trading for Facebook doesn't mean this is how it's going to be for the long term.</s>VELSHI: That's a very important point. So we've been talking, Christine, about whether this is bad for Facebook. This might be the best deal a retail investor ever got. Because we always say that on a big IPO, the retail investor can't get in on the IPO price. Look at that price. 38 bucks is exactly the IPO price.</s>ROMANS: And it is the first day of trading. This is the beginning of the new chapter for Facebook. Let's go over to Felicia Taylor at the New York Stock Exchange. Felicia, traders there as well watching what's happening on the competing exchange.</s>FELICIA TAYLOR, CNN CORRESPONDENT: You have no idea how much attention there is on this stock. I've been talking to traders all day long. And listen, I want to tell you something that's really interesting about what's actually keeping the price of this stock around $38 where it was -- the IPO price. That is a lot day traders getting in at the last minute and trading it up and down. Just a fraction. A few pennies here and there. That is what's hampering the stock right now. It likely will - and of course, the underwriter comes in at that $38 price range and keeps that price. The expectation, or at leas the speculation, right now, is that it could possibly trade even lower than the IPO price next week. Next week is going to be a focal point for Facebook stock. Right now, though, it's the day traders that are keeping it in a very tight range. Probably in the next 20 minutes or so, you're likely to see this stock close at exactly where it opened. Although there is the one speculation out there that this is exactly what the underwriters wanted, you know, a little bit of a pop at the open, up about five or 10 percent, that too is out there. But frankly, right now, this stock is being traded and traded heavily.</s>ROMANS: All right. Thank you, Felicia.</s>VELSHI: All right. Dan Simon is at Facebook headquarters. This was an amazing -- regardless of what's going on with the stock, which is very unusual, it was an amazing day at Facebook. They rang the opening bell --</s>ROMANS: Lots of new millionaires -</s>VELSHI: Lots of new millionaires -</s>ROMANS: -- big millionaires, no matter what happens today.</s>VELSHI: Mark Zuckerberg, the whole -- thousands of people came out to kick it off on the first trading day. Dan, does this matter, the stock price thing out there? Does this matter to them? Or are they not following the stock all that closely?</s>DAN SIMON, CNN CORRESPONDENT: They are watching it. But, you know, I spoke with a Facebook executive a short time ago, and I asked him about the stock price and he didn't really have much of a reaction. Sort of picking up on what Alison said - look, it's the first day. This is a marathon they are running here. But I can tell you that he told me that the energy level in that courtyard when they rang the bell was tremendous. All night when they had the hackathon, when people kind of get together and come up with some new ideas. There was so much electricity in the room -- said it felt like a rock concert. That said, right now it's a bit more subdued. These guys pulled an all-nighter. And so a lot of them actually went home. They are taking a break. Some of them actually did go back to work. But earlier today as Mark Zuckerberg rang that bell, obviously, so much enthusiasm in there. And of course, they are watching the stock price closely, but at this point, obviously, not much concern.</s>VELSHI: All right. Dan, thank you very much on that. Dan makes a good point. They are tired. They worked all night. Here's something interesting. You're seeing the price at, $38, $38.01. That is not necessarily a natural place. It's not that it all of a sudden came to $38 and it's jockeying around there. My suspicion is that the underwriters, Morgan Stanley -- it looks bad very for a company that advises a company that is going for an IPO to price the stock incorrectly. So the fact that it gets to around $38, I wouldn't be surprised if there is what you call intervention in the market. That Morgan Stanley and its friends are buying the stock so that it does not close below $38.</s>ROMANS: And, as Felicia said, there are a lot of people who thought they never had a shot, and then suddenly now they are day trading in the afternoon, thinking, "Wow, I can get it at $38." One man who is not surprised about all this is Ned Riley, the CEO and founder of Riley Asset Management investment company. Ned, you didn't buy the stock, and you told people not to touch it. You were not buying into the hype. So Ned, we talked about the failure to launch today. Was the hype unjustified?</s>NED RILEY, FOUNDER AND CEO, RILEY ASSET MANAGEMENT: Yes.</s>ROMANS: Just yes. It was unjustified. So many people thought it was going to go up. They thought this was a company that everyone understands, $900 billion, Mark Zuckerberg is a genius, Sheryl Sandberg is the best COO in America. Are you surprised it's only $38 a share right now?</s>RILEY: I am surprised that it's $38. But there are several reasons for it. And Ali hit it right on the head there, too. The syndicate has got to keep that price at $38 a share for the end of the day, anyway. So they are in there buying stock other people are selling. Because nobody wants to carry a long position over the weekend. The second thing I'm encouraged about, is that people paid attention to some fundamentals, I hope. That was the fact that the company itself said it could not convert to the mobile concept successfully at the moment. It's hurting their short-term earnings. It could hurt their long-term earnings. You've got to come up with a pretty big platform that is going to figure out how to put advertising on the iPads and rest of the devices out there. Third thing I had a problem with, too, is -- what they call in the business oversubscribing.</s>VELSHI: Right. If you don't think you're going to get your 100 shares, you can order 300 shares. Well, what I heard this morning was, an institutional manager had put in for a million shares -</s>VELSHI: Got them.</s>RILEY: -- and got them.</s>VELSHI: That's exactly right</s>RILEY: So that's rocked the heck out of him.</s>VELSHI: So, what happened, Ned - we're trying to piece this together - but what happened between maybe 10:30 when this thing was supposed to open for trading, and about 11:30 when it did, we were hearing, was that traders were trying to cancel orders. Which is very suspicious on a brand-new IPO. But here's the thing, Ned. We had people saying it was going to be $90, $60. You were at the low end. I think you were talking about $50 maybe? So does that mean that you think --</s>RILEY: Maybe open at $50.</s>VELSHI: You think it's got some space to ride? If you are the retail investor watching us, the average joe, and can you actually buy a stock at the IPO price of a major company, should you?</s>RILEY: See, $50 I threw out was purely on the hype and the speculation. Remember, between the time we met before and now, they increased the size of the offering by the selling shareholders so you actually provided more supply for that demand out there. The second is that, after the initial hoopla of the whole thing, people decided that the demand wasn't as great as it looked before, so they're all selling in. And that $38 price that hit this morning, that too was the syndicate coming in there and saying, "Whoa, wait a minute, we can't break that price so we're going to support it until it starts to go back up again."</s>ROMANS: Ned, don't go anywhere. We're going to go back to the New York Stock Exchange right now. Felicia Taylor is there. And she's got Ken Polcari with her, someone who understands very well the trading problems. I was saying earlier, it was like an anaconda trying to swallow a goat. 400 million shares into the stock market. There were some problems.</s>TAYLOR: That's a great analogy, Christine. I wouldn't have come up with it myself but I love it. OK, the point being is that this was a $420 million offering. I mean, you can't really compare this to anything else. And the valuation of $100 billion, that's the first company ever to go public like that.</s>KEN POLCARI, MANAGING DIRECTOR, ICAP: That's right. So from that point of view you can't compare it to anything else that's out there so it is difficult. But beware -- this morning the opening wasn't 400 million shares. The opening was 78 million shares. Yes, it's a lot of volume, but it's not enough volume that it should have caused a technological breakdown at Nasdaq. Which is - actually, when that started to happen, what cause some of the nervousness in that whole social media group.</s>TAYLOR: The fact they weren't able to fill some of these orders, how concerning is that?</s>PLOCARI: Well, the issue about not filling orders is the technological failure. So that's what caused part of the problem is that the system got overwhelmed and when they went to open it, what happened was, the reports were not going back automatically. So people who had orders in there to buy or to sell did not know whether their order was represented, was it executed, did they get a completion or not. In fact it took Nasdaq almost four hours to get the reports out. In fact, it is interesting but they were going out giving manual reports.</s>TAYLOR: Which is not what they normally do.</s>POLCARI: Clearly not. They're the technological exchange.</s>TAYLOR: Not like the New York stock exchange. There was a little humor here.</s>VELSHI: Kenny, Kenny.</s>POLCARI: Ali and Christine are well aware.</s>TAYLOR: As the day closes, we're seeing a lot of day traders jumping in right now. Are you surprised about this? I mean, I mean this is heavily traded right now.</s>POLCARI: No, I'm not. But listen, it's not nearly going to have this volume next week once it settles down. And don't forget -- Ned and Ali actually made a very good point. The $38 bid right now is a syndicate bid. This stock is not trading below $38 today. Monday or Tuesday might be a different issue. I would think probably not Monday, maybe Tuesday they'll let it go on its own. But it's certainly not trading below $38 today.</s>VELSHI: I'm going to pick up on that point. That's a brilliant point, Kenny and Felicia. Syndicate bid - let me just explain that to our viewers. The group -- the stock is underwritten. When you want to go public, you find a bunch of bankers. In this case, Morgan Stanley was the lead banker. They get other banks. These are the people who advise the company on what the price should be, and they want there to be enough demand. So they -- it is bad for business for Morgan Stanley and the syndicate if this thing sells for less than $38, so they are supporting it, they're getting in and buying it. But as Kenny says, at some point this gets old. They might do it for a few days.</s>TAYLOR: That's right. Watch what happens next week. See, everybody clapping down here on the floor? They're watching this stock hitting $38 and even dipping below it. They're surprised about this.</s>POLCARI: Listen. It won't dip below today. No matter what happens with the market I would be very surprised if Morgan Stanley, Goldman Sachs, or First Boston (ph) let this thing trade below $38 no matter what the broader market does. Now, Monday, like Ali said - or like you said, Monday or Tuesday will be a very different story. It's got to jump, it's got to run on its own two feet.</s>TAYLOR: You can hear the whooping on the floor. They are watching this, every single trade that happens. You can literally do that on some of these monitors because of electronic trading. It is highly traded right now.</s>VELSHI: All right. Felicia, Kenny, good see you, as always. Ken Polcari is an old friend of ours. Hey, so, we're watching this thing, $38, $38.01. Did you see it flash $40 a minute ago></s>ROMANS: I did, I did --</s>VELSHI: So this is very volatile trading.</s>ROMANS: Look, I want to be clear here. We've said from the very beginning that this is --there's excitement around Facebook, something that 900 million people around the world use. You all understand it. We always say, you know, buy or invest in what you understand. But this is the first day of the next chapter for Facebook. Right? Facebook as an investment. We're going to learn a lot more about how this company earns money and what it is going to do next. What, Ned - bringing you back in - what, Ned, does Facebook have to prove right now to hold on to $38 a share in the stock market?</s>RILEY: Well, I'm not sure they're going to prove it right away because the platform, new business platform that they have to work on is going to be very difficult. I am shocked that Facebook hasn't already thought about this and developed it. They pointed it out in the second quarter report that the revenue was not coming along with the conversion of people from laptops and desktops over to the mobile devices. So, you know, if you hadn't thought about it before, I'm a little nervous that they're going to suddenly develop the idea and here we can put the advertising next to the -- on that mobile app.</s>ROMANS: So many people are excited and inspired about stock market investing all of a sudden. People who don't even know how to log on to their 401(k) are asking me, you know, how do I get Facebook shares. Is this a moment to maybe think about how you should be invested?</s>RILEY: Christine, I thank you for that question. I have had a problem with these social media stocks for a while now. And selling at multiples that are ridiculous and the frenzy around them. Everybody saying look, this is it, this is the new generation. The new technology of the decade that comes. I heard that about 15 years ago. The problem we've got right now is one that they've created such a size of an audience and yet they are living off the ad revenue that's generated from it. These are going to be great companies and they still are great companies, but you know, it's duplicated, it can be replicated. This stuff is not without its competition. And Facebook's got it to.</s>ROMANS: All right. Thanks Ned. And we're going to keep talking about this for the next hour. Thank you Ned Riley. We're going to take a short break now. When we come back, the closing bell with Wolf Blitzer.