“Faceplant” for Facebook IPO

Update to Mark Zuckerberg’s status: newly married, back from honeymoon, just lost a few billion dollars. Don’t worry about Zuck, though, he’s still a megabillionaire, and the company he founded will no doubt rebound from its disastrous debut on Wall Street. Facebook took it on the chin on May 18, when it “went public” in one of the largest IPOs in U.S. economic history. (An IPO, or initial public offering, is the launch of a company for public trading on a stock exchange.) Before the IPO, it had been “privately held,” meaning it was not listed on stock exchanges open to general investors.

The investment bank Morgan Stanley, the key underwriter of the IPO, priced Facebook’s shares (traded as FB) at $38 each. The company’s valuation of $104 billion to start was the highest ever for a newly public company, and initial sales on the NASDAQ stock exchange netted the company $16 billion. But it was all downhill from there—at least for the first couple of weeks—as the company’s valuation slid.

Stock markets are unpredictable, and no one can see in advance how an IPO will go. In 1986, when Microsoft became a publicly traded corporation, it was valued around $780 million, but by 1999, its stock had risen more than 700 times. The value of Facebook, on the other hand, had already been bid up by private investors in the year leading up to the long-awaited IPO, and thus a handful of “insiders” captured most of those gains.

The high-flying tech company’s valuation has come back down to earth, but whatever its stock price, the money raised by the IPO will actually help it pursue growth opportunities. With 900 million regular users worldwide, more than half of which visit their pages daily, the eight-year-old company’s reach is unrivaled. Although free to users, Facebook gains significant earnings primarily through advertising sales.

Image credit: © Richard Drew/AP Images

Related Links

• Top 10 Reasons Why Facebook’s IPO Went Badly
  Two weeks into Facebook’s IPO, one economist highlights what went wrong.
  (Source: HuffingtonPost.com, May 31, 2012)
• Here’s the Chart That Explains Facebook’s IPO Mess
  This article analyzes the private trading and valuation of Facebook prior to the IPO; includes a graph showing the company’s meteoric rise to a $100+ billion valuation.
  (Source: CBS News, May 31, 2012)
• Insight: Morgan Stanley Cut Facebook Estimates Just before IPO
  Find out why some investment analysts, including at the leading underwriter, were worried about Facebook’s IPO.
  (Source: Reuters, May 22, 2012)
• Facebook Ownership Structure Should Scare Investors More Than Botched IPO
  Read this description of why Facebook’s ownership structure makes it less attractive to some investors.
  (Source: Forbes, May 23, 2012)
• 7 Reasons Why Facebook IPO Was a Bust
  A somewhat snarky summary of the factors behind Facebook’s dismal initial public offering.
  (Source: Forbes, May 21, 2012)