Friday, May 18, 2012

Catching Our Breath After the Facebook IPO...

It finally happened.  "Facebook Friday".  Facebook had its initial public offering and shares of its stock will henceforth be publicly traded on the NASDAQ.

Weeks, if not years, of hype led up to this penultimate moment, and now that it's over and done with, let's take a moment and evaluate what just happened.

First of all, after setting the initial share price at $38, by the end of the day the stock rose to only $38.23, a gain of only 0.6%.  So much for launching into the financial stratosphere.

Second, there were technical glitches in the NASDAQ that delayed trading until 11:30am.  This may have unnerved some participants and prompted some selling.  Or not.

Third, only a fraction - 15% - of Facebook's available stock was made available in the IPO.  The remainder is left in private hands.  Mark Zuckerberg himself is expected to retain about 57% of the company, thus remaining in complete control over decision-making.

Fourth, the company has an estimated P/E ratio of 64, plus, according to Bloomberg News, revenue growth is expected to slow for a third straight year.  Normally, these facts would not bode well, but in a dot-com context, c'est la vie.

Fifth, even after this IPO, Facebook's market value is still only about half the size of Google's.  However, the company is now worth more than McDonald's,, Hewlett-Packard, and Cisco, to name only a few.

Sixth, the media was strikingly negative on the IPO leading up to the big day.  Some sample headlines:

  • "Ahead of Facebook I.P.O., a Skeptical Madison Ave" - New York Times
  • "How Facebook Could Trip Up Investors" - Wall Street Journal
  • "Spend Your Money on Google, Not Facebook" -
  • "5 Numbers That Should Scare Facebook Investors" -

What were the causes of this media negativity?  What were its effects?

In the end, there was so much hype that the hype itself became the story.  As for the IPO itself...  meh.



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