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 Howard Gold
Facebook'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
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.
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
For everyone who did not buy into this
travesty of "investing", you STIFFED
all those disgusting investment banks
holding the bag.
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.
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.
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.
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.
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.
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
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.
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.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Start investing in technology companies with help from financial writers and experts who know the industry best. Learn what to look for in a technology company to make the right investment decisions.
Hotels and restaurants are increasingly fighting back against negative online reviews -- by suing the writers. So be careful how you phrase your disgust with that disappointing dinner.
VIDEO ON MSN MONEY
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'