4 reasons the Facebook IPO fizzled

For all the hype, most retail investors weren’t buying in, and it took some alleged buying on the part of the underwriters to keep the stock from losing on opening day.

By MSN Money Partner May 21, 2012 11:32AM

By Howard Gold

 

MoneyShow.comFacebook's (FB) much-hyped initial public offering started out with lots of hope, but it ended with a thud. The stock barely closed above the offering price of $38 a share -- and only after the underwriters reportedly bought up enough stock to keep it in the plus column.

 

Why? There were four reasons.

 

1. Facebook was already semi-public
The IPO "pop" had occurred much earlier. When Google (GOOG) went public in 2004, there wasn't a highly developed market for shares of private companies. Now, exchanges like SecondMarket and SharesPost allowed insiders to cash out and institutional investors to buy in before Facebook went public.

 

These markets had driven up Facebook's price 13-fold in four years of private trading, Bloomberg reported, and that took the wind out of the IPO's sails.

 

2. Facebook insiders got greedy
With all the brouhaha about the offering, Facebook could boost the offering price to its peak and sell 25% more shares than were originally planned.

 

The beneficiaries were primarily Facebook employees and venture capitalists and other early investors. The insiders were able to squeeze every last drop of value out of the IPO, and investors who bought on Friday were left with a dried-out lemon.

 

3. General Motors spoiled the party
The automaker couldn't have picked a worse time to announce that it wasn't going to continue advertising on Facebook -- timing so bad they might as well have been short Facebook stock. (Just kidding, folks, because it didn't happen.)

 

By publicly turning its back on Facebook just days before the offering, GM (GM) exposed Facebook's biggest vulnerability: It doesn't have a killer revenue source like Google did in paid search, but instead has an "evolving" business model. Translation: We still don't know how we're going to make enough money to justify our stock price.

 

4. Individual investors didn't bite
Despite lots of media hype, retail investors took a "been there, done that" attitude, and reportedly didn't buy in heavily. An Associated Press-CNBC poll showed two-thirds of active retail investors thought the IPO would be overvalued when it went public, and many of those surveyed said Facebook was a fad. So, they sat on their hands.

 

And who can blame them? Investors learned some hard lessons from the dot.com bust, housing crash, and financial crisis, and one of them was that corporate insiders, investors, and big Wall Street banks don't run offerings so John and Jane Q. Public can get rich. They're entirely for the benefit of the investors and executives.

 

The Facebook IPO succeeded admirably at that, but not at much else. That's why it turned out to be, by its own lofty standards, a dud.

 

Also read Howard’s take on how Uncle Sam and Governor Jerry hope to reap a tax windfall from Facebook’s stock on The Independent Agenda.

 

More from MoneyShow.com

 

141Comments
May 22, 2012 12:22PM
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Hard to invest money in a company that offers no product, really doesn't do anything for the public and is run by a child
May 21, 2012 2:02PM
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I hate Facebook and I'm only staying on it until after t he election, then I'm out. 

 

The idea that this jerk and his co-founder are abandoning their citizenships to avoid paying taxes just makes me sick.  Hell, I pay taxes, everyone I know pays taxes, but you are among the richest people in the WORLD and you would rather not be a citizen of the United States  than pay taxes, screw you.  People like  them are why we are in the crap we're in now.  I hope the stock  tanks and  is worthless and all major corporations pull their advertising from this disappointing piece of trash.

May 21, 2012 1:23PM
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Thank you to all who have become followers on Twitter!

 

Just a quick follow up to my FB posts from last week. There was a story posted Saturday about FB forcing a picture of a child with a birth defect to be removed from the mothers FB page. This is just the type of action that can and will land FB in the dog house. A bunch of spoiled little rich kids want to censor the content on their toy.

As a publi held company this is not acceptable; and very possibly illegal from the standpoint of discrimination. Hopefully the loving mother of this child will take legal action and all of you FB users will make your voices heard to correct this.

Who is banned next-People of color-The Elderly-Those of a certain sexual orientation?

Will Barry make sure that his equal rights for all includes those with birth defects and instruct the AG to file suit on behalf of all children with birth defects?

" We don't want to make money.We want to change toe world" MZ Bull

May 21, 2012 7:04PM
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Ha ha...thanks my fellow Blogmericans.

For everyone who did not buy into this
travesty of "investing", you STIFFED
all those disgusting investment banks
holding the bag.

Well Done!

May 21, 2012 4:57PM
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FaceBook is nothing more than a childrens chat program. Who the hell is stupid enough to invest in FaceBook.
May 22, 2012 11:36AM
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My thoughts are to invest on companies that produce tangible goods that consumers need, want, will use and can afford
May 22, 2012 12:06PM
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Also - I think people are not so happy with FB right now. Many of my FB friends are deactivating their accounts due to this TimeLine thing.  No one wants it and they would just rather not connect socially online than have to use timeline - I don't know anyone who likes it.  I don't use FB as much now that my account switched over. I've stopped playing the games I was playing. It is all such a hassle with timeline.  Users do not appreciate being "forced" to use the format. 

Before this "forced" use of timeline - the general "word" around town about FB by FB users was positive, now it is talked about much like Netflix was after they raised their rates.  FB used to just be part of life - now, all I hear is negative. 
Users are frustrated and disappointed. FB screwed up when they forced timeline. The grumblings of the users had to have had an impact on their going public and doing so poorly. 

May 22, 2012 2:00PM
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Farcebook..... it is what it is. Started by a egocentric idea swiper to prey on people's need to waste time with meaningless personal drivel. It's a flash in the pan that's dying out soon, it was really only a pump and dump for the stock $$$. Just ask Zuckerturd.
May 21, 2012 9:27PM
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How about they don't produce anything as reason #1. How soon we forget the dot.com bust. Facebook is a dopey social site nothing more.
May 22, 2012 10:50AM
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Who the hell ever thought that this was a good idea to buy stock into a social media site is a moron and your going to get what you deserve for buying into the hype. Anyone remember myspace? Where is that now? A distant memory and FB will soon follow.  

May 21, 2012 2:12PM
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And what does Facebook offer that is tangible???? Not a damn thing
May 22, 2012 12:13AM
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Outside of offering advertising that everyone but consultants looking for suckers and naive small business owners consider worthless, Facebook has no revenue potential other than to charge users, at which point users simply move on to the next free site that will spring up overnight to replace it, owned by people who aren;t so greedy and content to run a profitable private business.

 

If you bought facebook Friday, take your loss now and admit you're an idiot. If you still think it's worth buying, run across the room and hit the wall head first until you stop thinking.

May 21, 2012 11:09PM
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How about arrogance,people have an already low opinion of CEOs,COOs,and other company executives that get rich on everybody elses dollar,and zuckerburg didn't actually impress everyone with his people skills,he just seemed like a shyster,why make him any more rich at the average joes expense.The stock was overpriced,the media harped on the billions this ipo was going to get for the initial employees and select investors and GMs pull out of advertising showed it to be no big deal.I wouldn't be surprised to see a First Solar reaction,we got our money,NOW GOOD-BYE!

FB is intrusive,it invades privacy,it can cost a person their job,benefits or future by ,it sheilds lowlife (criminals),why support a company like that,it invades everybodies world.

May 21, 2012 1:49PM
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  The stock market is a tool for the rich to fleece the poor and do it legally.  Facebook is an example of failure of epic proportions. 

May 21, 2012 4:43PM
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Like Rick V, I have been saying for weeks teenagers (I have one) KNOW that FB is over.  They're tired of it, just like they're tired of Angry Birds, Justin Bieber, Miley Cyrus, etc.  FB is a disposable fad.  They really were getting all over InstaGram, which obviously FB saw as an impending threat and acquired.

FB is like a movie set: there's nothing really behind the facade that is a tangible product or earnings model.  Its fortunes could turn on a dime as subscribers ditch it, since all it has is data mined from users too clueless to understand what they're giving away and the concept of personal privacy.  Information usually has a shelf life.

The pre-IPO GM move should have been a red flag to any retail investor considering this stock.  Very interesting timing...who did the Z-Man piss off over there in the executive mgmt?

Mr. Hoodie disrespected the Wall St system and it looks like the favor is being returned.

Retail consumers have had enough of bankster/Wall St shenanigans anyway, and understand that IPOs are rigged so that only the insiders do really well.

May 21, 2012 9:12PM
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perfect. I hope all these stupid social media companies fail and ideally go bankrupt. Only losers waste their time even visiting these nonsense, bandwidth wasting sites.

No substance, no worth, period

 

Tom

May 21, 2012 7:03PM
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Maybe I can trade my Beanie Babies for some FB stock.

 

May 22, 2012 10:34AM
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Wow, some of these posts are a bit distorted.  From the article, it seems Zuckerberg only screwed the big firms.   The small (retail/individual) investors stayed away.  My guess is because THEY are FB users and realize what it can and cannot offer. 

I just think it's funny the big firms took a bath because all they saw were dollar signs and not the lack of substance behind the IPO.

So, yeah, if you bought FB shares Friday, you are an idiot.

May 21, 2012 3:22PM
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im hearing its use is starting to decline.reminds me of myspace
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FACEBOOK WILL START FADING INTO OBLIVION AS THE FOLLOWING MONTHS GO BY. DOWN WITH FACEBOOK, FINALLY!!!

 

ZUCKERDICK IS A THIEF AND ALL THE PEOPLE WHO BOUGHT SHARES ARE F*CKING IDIOTS.

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