What's Facebook really worth? Shorts see a mighty low number

What's Facebook really worth? Shorts see a mighty low number
Despite the hype surrounding the social media giant's IPO, short-sellers are out in force betting against the company. Some see Facebook falling flat on it's face, with its share price tumbling dramatically by year's end.
MAY 18, 2012
Facebook Inc. may fall more than 42 percent below its initial public offering price by the end of the year, according to bets by structured-product investors. The most actively traded structured products tied to Facebook since its IPO have been so-called put warrants, whose buyers profit if the shares drop below a pre-defined level, in some cases as low as $22, data compiled by Bloomberg show. UBS AG (UBSN), Commerzbank AG (CBK) and Julius Baer Group Ltd. (BAER) are among lenders that listed 1,504 warrants and certificates in Europe linked to shares of the social networking site that were offered at $38. Since raising $16 billion on May 17 in the biggest technology IPO of all time, Facebook has tumbled, closing at $32 yesterday. The U.S. Securities and Exchange Commission and the brokerage industry's watchdog both said they may review the deal, after a person familiar with the matter said Facebook and Morgan Stanley, the lead underwriter, increased the offering price to persuade the company's backers to sell more of their stock. “There has been strong demand on the put side, with the ratio between puts and calls at around 70/30” with “some people expressing deep downside views,” Heiko Geiger, the head of public distribution for Germany and Austria at Bank Vontobel AG in Frankfurt, said in an interview yesterday. Ashley Zandy, a spokeswoman for the Menlo Park, California- based company, declined to comment. Best Seller Bank Vontobel's best-selling Facebook-linked product is a put warrant that will reward investors if the shares are below $22, the so-called strike price, in December, said Geiger. Put warrants give investors a cash payment depending on how far a stock falls below a set level. Julius Baer sold the securities with the largest trading volumes, two put warrants with strikes of $35 and $30 on the Scoach exchange in Zurich. Investors traded 402,000 contracts yesterday valued at $335,780 of the former and 603,000 warrants for $322,620 of the latter, data compiled by Bloomberg show. Zurich-based structured products distributor EFG Financial Products AG added Facebook shares to a basket of 10 social media companies that are tracked by a certificate that has traded on Scoach since last month, it said in an e-mailed statement. Facebook rose in German share trading today, climbing 1.6 percent to $32.50 as of 12:14 p.m. in Frankfurt. Massachusetts Subpoena The Massachusetts security division subpoenaed Morgan Stanley (MS) this week over its communications with clients. The firm said it handled the May 17 sale properly. The cost to short-sell Facebook has surged to the most-expensive level in a 10-point scale developed by Data Explorers Ltd., which said bets against the social-media company amount to 4.3 percent of shares sold in the IPO. About 18 million Facebook shares are on loan, an indication of short selling, London- and New York-based research company Data Explorers said in an e-mail, citing trades settled as of May 22. Facebook's underwriters sold 421.2 million shares to the public last week last week. The loans represent about 1 percent of Facebook's 2.14 billion Class A and Class B shares outstanding, according to Data Explorers. That compares with 5.3 percent for Zynga Inc. (ZNGA) and 4.1 percent for LinkedIn Corp. (LNKD), the data show. --Bloomberg News--

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