Facebook IPO: Historic Debut Falls Short of Expectations

The historic initial public offering of the social networking company did not go according to plan on Friday, as Facebook ‘s sky-high valuation combined with trading glitches left the stock languishing near its offering price at the market close.

The largest social networking sites shares fall on the company's multi-billion stock market debut in New York as the banks advising it stepped in to buy. Photo: Facebook

The giant’s shares, which opened up 11 percent, closed at $38.23 following a nail-biting last half hour of trading when the shares stopped at $38 IPO price. Previously quite a great number of investors had predicted a first-day pop.

As a result, about 576 million shares changed its owners, setting a trading volume record for U.S. market debuts. The company had priced its IPO at the top end of its target range and increased the size of the offering, becoming the first U.S. company to go public with a valuation greater than $100 billion, writes Reuters.

Facebook CEO Mark Zuckerberg, 28, whose personal net is estimated in about $20 billion, marked the debut of his company’s shares at the company’s Silicon Valley campus, ringing the opening bell for stock trading on Friday.

Facebook Chief Executive also hugged and high-fived Sheryl Sandberg, the company’s chief operating officer, who is credited with bringing crucial business discipline to a company founded eight years ago.

The stock debut took place in a weak market, and according to traders, the first-day pop, which showed lower than expected results, reflected the very aggressive pricing of the offering and a last-minute, near 25 percent increase in the number of shares being sold. Analyst predictions of first-day gains had ranged from 10 percent to 50 percent.

“The increase in size was a big negative factor for us,” said Tim Ghriskey, chief investment officer at Solaris Asset Management, who said he canceled some orders for the shares.

The IPO price was equivalent to more than 100 times historical earnings, compared with Apple Inc’s 14 times and Google Inc’s 19 times. For many investors that made it a risky bet.

“We have got some unhappy guys out there,” said Wayne Kaufman, chief market strategist at John Thomas Financial, a retail broker on Wall Street. “They were hoping for Facebook to be considerably better. I bet there are a lot of disappointed people in the market.”

However, a small increase in the stock indicated that it was priced perfectly for Zuckerberg and early investors, who pocketed maximum gains and left little of the easy money.

“You want to price the offering correctly. Institutional buyers get a little bump and the company raises the right amount of money,” said Kevin Hartz, co-founder and CEO of Eventbrite, an online ticketing startup that is integrated with Facebook’s platform.

“If the stock has a massive bump on day one that means you misread market demand and company does not raise the right amount of money.”

As The Telegraph claims, Facebook shares were priced at the top end of a range that the company had increased the last two weeks. To compare: Google saw its shares climb 18pc on their opening day, whilr Groupon’s shares gained 31pc and Yahoo! rose an eye-watering 154pc.

Nonetheless, the valuation Facebook commanded remains the biggest one for a US initial public offering, which follows globally only the Agricultural Bank of China and the Industrial and Commercial Bank of China. By the end of the day, Facebook was worth more than households names including Pepsi, Ford and Walt Disney.

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