The Facebook IPO is scheduled for May 18, 2012. For the overwhelming majority of people who buy stock, an IPO like this is typically out of reach. Most often on the first day the IPO launches, institutional units get the shares, often with an eye of selling them that day when interest and enthusiasm is greatest; they buy at 9am, sell at noon, and pocket some profit. However, Facebook is playing this one differently than most IPOs.
. . . but Wall Street executives estimate that the retail share could be as much as 20 to 25 percent of the offering. Some of that increase is likely to go to brokerage firms like TD Ameritrade or E*Trade, which cater to small investors . . . The company is seeking to give retail investors a bigger cut because it sees itself as a service created for, and driven by, consumers. One person briefed on the offering, who declined to be identified because of regulatory restrictions, said Facebook sees itself as “the people’s company.”
This story is persuasion interesting for two reasons. First, see how Facebook is using social Cues to sell its IPO stock. Second, see how Facebook is using the New York Times as a vehicle for persuasion.
Start with a Little Guy investor.
“I would love to get Facebook stock,” said Joseph Quigley, a 32-year-old insurance sales and marketing manager in Maryland. Mr. Quigley is an active trader, buying and selling stock worth several thousand dollars a year.
Making the IPO available to small investors like Joseph Quigley will certainly help the price. Small investors, also known as John Jerk and his cousin Odd Lot Robert are the targets here, good folks who think they can swim in the financial ocean without encountering sharks. Usually the sharks are the institutional investors. In this case, Facebook is the shark. If you read the financial press – not the New York Times – much digital ink has been filed detailing the flaws with Facebook, its business model, and the IPO. The Big Boys and Girls are wary on this one.
If you’re Facebook and worried that institutional investors may lay back, you need to change the market. Don’t restrict the IPO to big professionals who doubt you. Encourage John and Robert and Joseph to participate on that first day. This move will create pressure on the price in a Scarcity play.
If It Is Rare, You Must Have It, drives this Cue. Facebook wants its IPO to be rare because that will push the price up. If the Usual Gang of Suspects is laying back, bring in some new guys for the Lineup. These unsophisticated buyers will succumb to that People’s Company line and overpay on the first day. That may tempt smarter professionals to briefly panic and buy higher than they would prefer.
You’ll recall that Facebook ran the Scarcity play earlier in the secondary market when they received permission from Congress to increase the number of private investors Facebook could have. They added a few more positions in the face of considerably higher demand. Adding some, but not many new positions increased pressure on even more to bid for those slots.
See how you can manipulate Scarcity with either More or Less. We observed Groupon reduce the number of shares available in its IPO (Less) to create Scarcity which helped keep that first day’s prices higher. Facebook will bring more buyers into the first day (More) to keep the price higher which will make shares scarce for bigger investors.
Now, the second Facebook persuasion play. Over the past few days, the New York Times in particular has been running favorable Facebook stories. Recall the Facebook organ donor persuasion fantasy. Now, in the current NYT story, the Times admires Facebook for opening up the IPO to the Little Guy. While the Times can write whatever it wants about anything or anyone, I find it peculiar that the financial press ranges from ambivalent to hostile in its coverage of Facebook. Here, for example, is a kind take on how people should consider buying Facebook on the first day of the IPO.
1. Don’t buy at the open.
2. Use a “limit” order.
3. Bet small.
4. Don’t be shy about taking profits early.
This is a cautious and thoughtful plan. Very High WATT. Nothing about the People’s Company or cheers for an organ donor box that won’t change anything for the real world. If you think about this plan (from the Wall Street Journal), that last line spills the beans – don’t buy to hold, buy to sell. That’s not a ringing endorsement.
So, why is the Times lately cheerleading for Facebook? A persuasion perspective suggests a relationship between the two companies. Perhaps key leaders at the Times own a piece of Facebook in that secondary market and would like to sell at a larger profit. More unsophisticated buyers on the first day aid that. Maybe key leaders at Facebook would like to get in on the first day IPO and are helping Facebook to get a better seat at the institutional table. Maybe Facebook made a straight business deal and bought the stories. Maybe, it’s just two companies helping each other out in hard times. Certainly, anything is legal. And persuasive. Facebook feeds socially relevant stories to the Times about organ donation and little guy outlets for the IPO and the Times shouts them into their megaphone.
And you thought it was just about money, market, and quality.