Did Facebook debacle destroy IPO market?

The social network's rocky Wall Street debut could have wider repercussions for other companies that want to go public.

By TheWeek.com May 24, 2012 1:12PM

Image: Arrow Down (© Comstock/SuperStock)Facebook (FB) continues to reel from its botched IPO, which has already prompted shareholder lawsuits and a public outcry over alleged backroom dealing between the social network and Wall Street. The company's stock price on Wednesday closed at $32, 16% below its opening price of $38, and investors are complaining that Facebook hasn't come even close to matching the breathless hype that accompanied its debut.

The controversy has also awakened broader concerns that other companies, wary of repeating Facebook's mistakes, will become more reluctant to publicly trade their shares. 

Did Facebook's bungled IPO ruin the whole IPO market?

Small companies will think twice about going public. With its rise from a platform created in a Harvard dorm room to the world's largest social network, Facebook is a "small-business mega-success story," says Kathryn Buschman Vasel at Fox Business. But botched IPOs for high-profile companies like Facebook and the daily deals site Groupon have made small businesses doubt whether an IPO is a wise decision. Furthermore, Facebook's weak showing might send "signals to investors that the stock market might not be at its full strength," which would also discourage new IPOs.

Tech IPOs, in particular, could come under scrutiny. Facebook's inability to meet expectations could have an effect on valuations of other tech companies, say Sarah McBride and Gerry Shih at Reuters. Facebook's overpriced IPO could dampen the value of "fast-growing social-media companies, an area in which many people believe a bubble is emerging." At the very least, tech companies entering the stock market will be discouraged from "squeezing the maximum possible value out of the public markets and not leaving a penny on the table" for other investors, as Facebook did.

A calmer IPO market would be great for investors. If Facebook's example leads to "fewer initial public offerings at even lower prices," that would ultimately be a "positive for investors," says Karina Frayter at CNBC. Companies will be more inclined to set their IPOs lower, which would enable first-day investors to reap greater profits if the stock climbs.

More from The Week

Tags: FB
May 24, 2012 6:57PM
It's funny how people like to blame the free falling stock price on the "botched" IPO.

Want to know why the stock price is down? Because FB is not profitable enough to justify the opening stock price. Even now, it still looks like it's wildly overpriced and a sure loser. That is the real story.
May 25, 2012 2:12AM
Dear Wall Street, some thoughts for you.

Uhhh, no..FB has not destroyed the IPO market.  Just bring forward privately-held companies that :

- Have a real product that looks like it can produce revenue and is proprietary, not susceptible to fads, and cannot be easily replicated.

- Have opening share prices where the math works and demonstrates a realistic connection to benchmarks of values, like EPS...hello...fundamentals?

- Don't withhold key information investors should have to make a fair, intelligent purchase value decision

- Don't engage/buy-off the media to hype your product beyond the realm of fantasyland.

- Structure an IPO that allows the investor to get in at a share price that offers real value, rather than after the strike price at which all the insiders have sold.

- Find companies whose executive management look like business people and don't effect the pretense of sticking it to "the man" by wearing hoodies to NYC, even though it is a sham just for show because by making the decision to go public they have already sold out and bought in.

- Maybe find companies with founding executives who have some gratitude for the US financial system and the opportunities it creates that don't need to renounce their citizenship in advance of going from wealthy to fabulously wealthy so they can live a million lifetimes of luxury rather than just 100,000 by avoiding taxes.

Oh, and P.S....don't come off like the greedy, cheating, manipulating b**tards American investors have come to expect that you are.


May 24, 2012 5:47PM
Of course it didn't destroy the IPO Market there is a fool with money born every day. Only the shorters or insiders get to profit on these up front options. Every other poor fool has to take bad odds and get it in the shorts to make money off these IPO's over a long period of time. As usual the insiders and the rich get richer while the fools just keep gambling. Anytime you see the media Hype and IPO run fast the other direction.... The best IPO's are the quiet ones.
May 24, 2012 1:45PM
HA ! You invested in what??  You poor fool!
May 24, 2012 6:05PM
That would be too much to hope for.
May 24, 2012 7:31PM

The stock price could have been offered at a  much lower price.  What would that price have been?  Two times earnings?  Four times the accounts receiveable?   Three times cash balances?   What price to start the company at??.   Sure Facebook may not be worth $1000.00 per share but what should the price have been to start?  Now that Facebook has "collected" billions in capital the idea will be to use that capital.  Isn't that the purpose of stock offerings, to Grow a business!!!  Perhaps Facebook should now  buy Amazon,  half of Apple,  develop a new computer invention.   Facebook has all the talent and now the capital to go places no man has ever gone.   Facebook - Charge!!!  Kick some capital butt- Facebook!!   What company has the billions in capital you now have?   DO SOMETHING GREAT WITH IT!!!!!

My beef isn't with the high initial price. My complaint is that when I went to sell before the crash and I couldn't. My online brokerage couldn't process the order, because there were technical difficulities, but there weren't any when they took my money. Then when my order was processed the brokerage cancelled it and then today the order's been wiped from my history. If I were a paranoid conspiracy theorist I would be pointing fingers.
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