I think this article got many points right, but it failed to mention that ZNGA trading got halted, which could largely explain the semi-recovery of the price. You don't need to invoke the computer algorithms argument to explain that.
Why Did Zynga Tank After Facebook IPOed?
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Re: Why Did Zynga Tank After Facebook IPOed?
#22The reason is obvious to me. In fact it is so obvious now that I am kicking myself for not finding a way to make money out of it. It is related to the reasoning proferred by the Atlantic, but it is not exactly it. It is true that Zynga and facebook are very related. And for that reason, it seems to me that a lot of Zynga shareholders were holding Zynga shares not because they want to own Zynga, but because they want…
While this is a nice theory in principle, I think it falls down because of the timing of the ZNGA drop. The drop happened exactly when the FB shares were made available to trade (11.30 - 11.38), before this time they had been trading fine (in big volumes). You would expect the people that were holding these shares as a proxy for FB to have anticipated that others like them would have wanted to sell that morning and d…
If you were an ZNGA owner who's also interested in FB, you won't necessarily sell ZNGA before actually buying FB, because you don't actually know that you can get FB at a price acceptable to you until trading opens. In other words, human beings could contribute to the ZNGA price, not just trading algorithms.
Re: Why Did Zynga Tank After Facebook IPOed?
#23Earlier quoted context omitted.
To further support my theory, I note that LinkedIn also fell today by 5.6%. This was not a fall as steep as that of Zynga, but of LinkedIn is not as closely intertwined with facebook as Zynga.
GOOG dropped by 3.6%, that's around $7.1B in market cap which is almost half of the entire Facebook offering - do you suppose this was driven by people who really wanted Facebook exposure, too?
A lot of tech stocks declined today, not just GOOG, though GOOG declined quite a lot. Even (Adobe) ADBE declined by 2.19%.
Possible explanation: If you were a big institutional fund manager with a large portfolio, would you put your money in thousands of small-cap companies or a few large-cap companies? When an opportunity like FB arises and you want to get in, what would be the easier way to get the liquidity needed to buy FB? If you don't have very sophisticated trading and portfolio management technology, one of the easiest ways to get the liquidity is to sell the large-caps first, and GOOG could be one of them.
Another possible explanation: GOOG and FB are perceived to be enemies/antagonistic. So, when one stock has a positive event (IPO that provides lots of liquidity), the other stock is impacted. This is a psychological explanation. I can't prove it.
Re: Why Did Zynga Tank After Facebook IPOed?
#24We know that Morgan Stanley propped up Facebook's share price to keep it from falling below $38. To prop up the price, Morgan had to buy a truckload of shares. How else would you hedge your exposure to all those Facebook shares than to short Zynga and Google?
> We know that Morgan Stanley propped up Facebook's share price to keep it from falling below $38.
Why exactly do they wanna do that? If they're artificially holding it up, doesn't that mean they'll lose a lot of money in the next weeks when it goes back to an non-artificial price?
Re: Why Did Zynga Tank After Facebook IPOed?
#25We know that Morgan Stanley propped up Facebook's share price to keep it from falling below $38. To prop up the price, Morgan had to buy a truckload of shares. How else would you hedge your exposure to all those Facebook shares than to short Zynga and Google?
> We know that Morgan Stanley propped up Facebook's share price to keep it from falling below $38. Why exactly do they wanna do that? If they're artificially holding it up, doesn't that mean they'll lose a lot of money in the next weeks when it goes back to an non-artificial price?
Here's why:
"Buyers did not rush into the market to snap up shares of the social networker. And the big Wall Street banks that brought Facebook public scrambled to prevent the stock from collapsing into declines."
"The underwriters averted a potential debacle by scooping up shares of the company during the Nasdaq debut. This propped up the stock, keeping it above the $38 offering price through most of the day."
“When a deal gets priced and breaks price on the first day, that’s definitely a major embarrassment," said trader Andrew Frankel, co-president of Stuart Frankel & Co.
"The practice is pretty standard during IPOs, especially high-profile ones like Facebook. The big banks buy into a wave of selling as a way to prevent their customers from suffering big losses."
Source: http://www.latimes.com/business/technology/la-fi-tn-facebook...
Re: Why Did Zynga Tank After Facebook IPOed?
#26The reason is obvious to me. In fact it is so obvious now that I am kicking myself for not finding a way to make money out of it. It is related to the reasoning proferred by the Atlantic, but it is not exactly it. It is true that Zynga and facebook are very related. And for that reason, it seems to me that a lot of Zynga shareholders were holding Zynga shares not because they want to own Zynga, but because they want…
It's always obvious in hindsight.
If Facebook shares had tripled today, that would also have been obvious after the fact.
If Facebook triples on Monday, you will kick yourself for passing up the once-in-a-lifetime opportunity to buy at the IPO price of $38.
And if the Facebook debacle continues and craters the entire market, we will see that all the warning signs were there, if only we could have recognized them in advance.
Re: Why Did Zynga Tank After Facebook IPOed?
#27Earlier quoted context omitted.
To further support my theory, I note that LinkedIn also fell today by 5.6%. This was not a fall as steep as that of Zynga, but of LinkedIn is not as closely intertwined with facebook as Zynga.
GOOG dropped by 3.6%, that's around $7.1B in market cap which is almost half of the entire Facebook offering - do you suppose this was driven by people who really wanted Facebook exposure, too?
I believe there is a similar reason for Google. I don't think that many people held Google as proxy for Facebook, but I am sure there are large funds that devote a certain percentage of their money for internet large cap stocks. Well, there aren't many internet large cap stocks, so Google held a large part of this money. When another internet large cap stock appears, the funds would sell some Google in order to get a proper exposure to Facebook. And thus Google falls.
Re: Why Did Zynga Tank After Facebook IPOed?
#28We know that Morgan Stanley propped up Facebook's share price to keep it from falling below $38. To prop up the price, Morgan had to buy a truckload of shares. How else would you hedge your exposure to all those Facebook shares than to short Zynga and Google?
Congratulations for having the only reasonable answer in the entire thread.
Re: Why Did Zynga Tank After Facebook IPOed?
#29It looks like pair trading.
Re: Why Did Zynga Tank After Facebook IPOed?
#30We know that Morgan Stanley propped up Facebook's share price to keep it from falling below $38. To prop up the price, Morgan had to buy a truckload of shares. How else would you hedge your exposure to all those Facebook shares than to short Zynga and Google?
> We know that Morgan Stanley propped up Facebook's share price to keep it from falling below $38. Why exactly do they wanna do that? If they're artificially holding it up, doesn't that mean they'll lose a lot of money in the next weeks when it goes back to an non-artificial price?
Such a prop up guarantee is probably part of the underwriting deal these investment banks signed. Morgan Stanley was the lead in this IPO deal.