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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 3 years, 3 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.

Ron Holzwarth 3 years, 3 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."

Megan Spreer 3 years, 3 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.

Ron Holzwarth 3 years, 3 months ago

Here's a disconnect that just does not seem right. Why did FB go public at all? That does not make much sense to me, except to think of it as being a means of enriching the original owner(s) and the original early investors. In that endeavor, it certainly worked.

It just does not make sense. Now Zuckerberg is accountable to even more stockholders, which I think would be a pack of trouble. If the company was all that wonderful and profitable, he should have simply kept 100% ownership if at all possible.

I have known two men that started and still retain 100% ownership of their companies, one is a viable home business, and the other became a multimillion dollar big business with about 50 employees today and an owner who is almost never around. He doesn't need to be around, the president of the company runs it, and it's a serious money making machine that he owns 100%.

Neither one of them ever borrowed a dime or issued stock. They didn't need to, and never considered it because the businesses were always profitable.

I also worked for another where ownership was closely held by only two or possibly three individuals. That whole company was for sale a few years ago, but as far as I know, it never sold although I believe it to be a viable business. But, with a whole lot of ups and then downs when it became necessary to lay off a large number of employees.

And, here's the kicker, I also worked for a two companies that did sell stock and borrow money from investment banks. They didn't do well at all, and later simply folded. One of them did manage to pay back all the investors, but I was told there had not been any profit at all. The other wiped out every one of the stockholders, and burned the investment banks.

Here's what's rather funny, I think. I worked for those two companies a few years apart. The investment bankers came and inspected the first one. Of course, we had all been told to look our spiffy best for that. That's the one that managed to pretty much pay everyone back. Then, a few years later I was working for another company when the investment bankers were inspecting.

And - I recognized one of the bankers! Of course I didn't say anything, and he didn't seem to remember me. And that's a good thing!

So, since I've been around a bit, and had a few extremely interesting jobs, I would certainly be a hard sell on FB stock. Did FB actually need the capital to continue in business? If the company does need the money, I think something is wrong.

Flap Doodle 3 years, 3 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.

Megan Spreer 3 years, 3 months ago

That's a valid point. Although, it seems that the counterfeit and spammy ads have lessened recently to be replaced by well-known and higher level companies. Perhaps, this was a change in lieu of the upcoming IPO?

Ron Holzwarth 3 years, 2 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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