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And the IPO fell flat

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Facebook's much anticipated IPO fell flat today on its opening day. With a mere $0.23 jump in share price, it did not make the waves that were anticipated to flood Wall Street.

Industry analysts are speculating numerous causes as to why the IPO was less than eventful. We have some ideas of our own.

  1. Buzz overkill. How long have we been hearing about this? This highly publicized IPO filing was talked about on so many different media outlets that even non-Wall Street followers were in the know about almost every hiccup that Zuck made in this process.

  2. GM's bomb. Losing a major advertiser within the week of your opening day on the NASDAQ, can't help. This well-publicized development probably only added more doubt to potential investors.

  3. NASDAQ stalled. Some (Kevin Pleines, equity market analyst with Birinyi Associates) say that the confusion created by the 30 minute delay didn't offer the stock any favors. NASDAQ offered the stock at 11:30am EST instead of the initial 11am scheduled time.

This list could potentially go on and on, but we want to hear from you. What factors do you think contributed to Facebook's anticlimactic? Do you think things are just slowly warming up? Or was this just a lot of hype?

Comments

Ron Holzwarth 1 year, 10 months ago

Today, June 4, 2012, FB closed at $26.90. That's quite a drop from $38.23!

With a free fall like this, it won't take anywhere near a whole year to drop to $18, as I suggested it would in my first comment.

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Flap Doodle 1 year, 11 months ago

Facebook needs to flush the counterfeit goods sites from their advertisers. Facebook may make money in the short run being in bed with such scum, but big-time legit advertisers may not want to be associated with those folks.

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Megan Spreer 1 year, 11 months ago

I think you perfectly illustrate the mindset of many potential investors. Without tangible assets and mere days after a very public bashing of one of their revenue sources (GM removing ads), it just seems like this may have been a bit premature. There are a lot of things that Facebook has done right, but I think they still have some wrinkles to iron out before they can appeal to this type of market.

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Ron Holzwarth 1 year, 11 months ago

From the blog: "Facebook's much anticipated IPO fell flat today on its opening day. With a mere $0.23 jump in share price, it did not make the waves that were anticipated to flood Wall Street."

The selling price for FB was artificially propped up by underwriter Morgan Stanley. They were successful in maintaining FB above the issue price of $38. That does not sound good to me at all. Can they do that forever?

Clipped from Wall Street Journal: http://online.wsj.com/article/SB10001424052702303448404577411903118364314.html?mod=WSJ_hp_LEFTTopStories

"Facebook was also hurt by investors' high expectations of a healthy first-day pop in the price, according to people familiar with the matter. When that pop didn't happen, it prompted a selloff, these people said.

That's when Facebook's underwriters had to step in to support the company's share price, people familiar with the matter said. In particular, lead underwriter Morgan Stanley was assigned to be the deal's "stabilization agent"—meaning it was the firm's job to keep the shares above the offering price, these people said. In that role, Morgan Stanley was forced to buy Facebook shares as the price slid toward $38 in order to prevent the price from crossing into negative territory, according to these people.

Morgan Stanley, which led the platoon of 11 Wall Street banks that arranged the listing, had to dip into an emergency reserve of around 63 million Facebook shares—worth more than $2.3 billion at the offer price—to boost the price and create a floor around $38 a share, according to people close to the situation."

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Ron Holzwarth 1 year, 11 months ago

I think that Facebook's anticlimactic IPO is simply due to the fact that quite a few investors are aware of reality. I'm not an accountant, and there's a whole lot I don't know, but I'm very sure that the Facebook shares that were offered for sale were ridiculously overpriced.

First off, what are Facebook's tangible assets? Well, quite a lot of computer equipment that will be obsolete in the not too distant future, office furniture, perhaps some real estate, and I can't think of anything else.

The intangible assets are the website address, the trademark name, quite a lot of goodwill in the form of brand recognition, and a very large number of subscribers.

The costs of operating the site are probably rather low, considering the size of the company, the number of subscribers, and the very large revenue at the moment.

With the present business model, advertising revenue is the sole source of income. That is a very fickle field, and the businesses that advertise on the site expect results in the form of clicks and visits to their websites. But, it's been estimated that only 44% to 50% of Facebook users ever click on the ads at all.

There is also the possibility that more countries than already have could block Facebook from their citizen's internet.

It's possible that there may be some issues that arise with the whole Facebook network, in that it's possible that hackers and spammers could send massive messages and postings, making the subscribers nervous about the services that Facebook offers.

It's possible that another social networking website could quickly become popular.

Facebook is very likely to follow the path blazed by AOL, in that the stock was traded at $28.45 on April 19, 2010, and then dropped to $11.78 on August 8, 2011. Of course, it did go up and down a whole lot.

From: http://finance.yahoo.com/echarts?s=AOL+Interactive#symbol=aol;range=5y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

There's always the very quickly changing nature of just about anything related to computers and computer networking.

There's also the fact that Mark Zuckerberg is retaining a 55% stake in the company. That means that he's going to be running the show, since he cannot be overridden by any shareholder votes. So, the stockholders are just along for the ride. And, I am quite sure it's going to be a bumpy ride, just like AOL.

Considering all of those factors, I think that the issuing of $18.4 billion in stock for the IPO is way too high.

The shares were issued at $38 each, and my guess is that they are going to be trading at $18 in about a year. So, I certainly would not consider ever buying FB stock.

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