“This whole IPO thing was supposed to be a lot more fun”
Dow 12,369 (-.59%) S&P 1,295 (-.74%)
After 5 straight depressingly negative days, Friday morning was the psychological break you, us, and every investor who ever owned a modem was waiting for – Facebook‘s record Initial Public Offering (IPO). But if we read one more article that mentions “liking” Facebook stock or “poking” a broker to buy some shares, the MarketSnacks team will collectively jump in front of traffic. The only thing bigger than the build-up to today’s Facebook-a-palooza was journalists’ frenzied effort to accumulate as many social-networking analogies as humanly possible. Despite the hype, Facebook shares stumbled and continuing Eurozone concerns (16 key Spanish banks were downgraded yesterday) ultimately overwhelmed investors. The Dow dropped 73 points for its 6th straight loss and worst weekly finish in years.
How did Facebook’s IPO get here?
Ahead of today’s Facebook (FB) stock fiesta/bar mitzvah, the $38/share price was set by wealthy investors and institutions yesterday who made bids for the stock over the last couple weeks and ultimately purchased existing shares from Zuckerberg, Goldman Sachs, Peter Thiel and other long-time Facebook investors. Facebook went public, selling its shares on the open market for the first time through an initial public offering, in order to raise money. By selling $16 billion worth of shares, Facebook raised more money in an IPO than General Motors (GM) in 2010 and just short of Visa’s (V) record for American companies in 2008. The most important element of this valuation was how Facebook brought in just $3.7 billion in revenues last year – this eye-popping 88 P/E ratio (price per share divided by earnings per share) is a critical way to measure the value and hype of a stock. Expectations were high….
What happened to Facebook’s IPO today?
Things got off to a rocky start. IPOs often begin trading after stock markets open at 9:30am, but Facebook’s 11am scheduled start was delayed 40 minutes because the NASDAQ exchange struggled to match up the millions of buyers with sellers. FB shares immediately jumped 11% from the $38 offering price on the overwhelming demand, but that level of enthusiasm couldn’t be maintained – after reaching $45, the stock fell to its opening price. FB never touched under $38 because the underwriters (the investment bankers who brought the company public) started buying the shares to prevent them turning negative, a potential black-eye on Facebook’s “first day of school.” The lackluster performance influenced related companies like LinkedIn and Groupon (game developer Zyngawas even given the “mercy rule” and trading stopped after so many investors sold its shares) who got slammed. Overall, Facebook’s modest finish may not be considered a huge success, but still set records for trading volume with over 571 million shares exchanged.
Why did this happen to Facebook stock?
Facebook’s uninspiring 23-cent debut today is not a reflection of what the company has accomplished, but is foremost a judgment about the potential for the site to make cash money. Some doubt whether Zuckerberg and his circa ‘98 Adidas slip-on sandals have what it takes to be a bona fide corporate CEO. Others question whether FB can rely only on advertising revenues (GM recently pulled millions for Facebook ads because it figured users preferred stalking ex’s over auto ad distractions). And many simply believe that today’s record valuation was too enormous considering the company is so young. These bearish thoughts may have moved the stock today, but with unprecedented access to 900 million users’ information, many still believe that FB will continue to revolutionize how ads reach customers. Either way, this IPO raised $16 billion and Mark Zuckerberg is sitting on a bajillion dollars.
Next Week:
- How will Facebook perform after the attention of its IPO is gone?
- Spring Housing Data in the US….
© 2012 MarketSnacks
4 Responses to ““Facebook IPO Disappoints As Markets Cap Worst Week of 2012″”