18th May, 2012
Facebook stumbled in its first trading day Friday as shares ended barely above the starting price after a glitch-plagued market debut on the Nasdaq that failed to live up to the enormous hype.
The stock, priced at $38 on Thursday in the largest-ever initial public offering (IPO) for a technology firm, eked out a gain of just 0.61 percent to end at $38.23, amid record volume of more than 575 million shares.
Shares in the social network titan saw roller-coaster action in what was one of most keenly awaited issues in history. The day began with a 30-minute delay in trade, an incident which regulators were still reviewing.
Shares jumped 12 percent to $42.55 in the opening Nasdaq trades but within minutes fell back to the offering price, and a midday rally failed to sustain momentum.
“The negativity in the market overall has put a damper on the IPO,” said Darren Hayes, a Pace University professor and former investment banker.
“It’s not uncommon in an IPO to see a big rise and then for the price to come back down, but I’m a bit surprised after all the hype to see such a small gain,” he said.
“I think there may be some skeptical investors who see some challenges in the long-term outlook of the company.”
Gerard Hoberg, an economist at the University of Maryland said there was enthusiasm from some buyers but skepticism from professionals.
“You have a lot of bullishness from retail investors, people who use Facebook, and there’s a lot of those investors creating a lot of buying pressure,” he said.
A report on the Business Insider financial blog said the price held at $38 because of a large number of standing orders at the offering price. The Wall Street Journal said the underwriting investment banks stepped in to support the price.
“It’s hard to know what would have happened if the banks hadn’t stepped in,” said Lou Kerner of the Social Internet Fund, raising questions about what will happen to Facebook’s share price when the Nasdaq reopens on Monday.
“I think the shares were fairly priced, but the shares were trading on fear today, not greed.”
James Hughes, chief market analyst at London’s Alpari said “the real value of Facebook is not likely to be known until the hype of the IPO has died away and investors have been able to digest how the company is going evolve to be the money-making machine many expect it to be.”
Investors were expected to be hungry to get a piece of Facebook, which has become a global phenomenon since its beginnings in 2004 as a project of then-Harvard student Mark Zuckerberg and his classmates.
Zuckerberg, wearing his trademark hooded sweatshirt, remotely rang the bell to open the Nasdaq, marking the historic share offering that confirms the growing importance of the social network giant.
“Going public is an important milestone in our history,” Zuckerberg told the crowd at the company’s campus in Menlo Park, California.
“But here’s the thing. Our mission isn’t to be a public company. Our mission is to make the world more open and connected.”
Zuckerberg and hundreds of employees cheered as the 28-year-old co-founder rang the bell via video for the New York-based Nasdaq. He wore a dark hoodie, unfazed by criticism from some on Wall Street about his casual attire.
The market debut was disappointing compared with some recent tech IPOs: the LinkedIn social network doubled on its first day last year and Groupon jumped 30 percent. But Pandora rose a more modest 8.9 percent and Zynga lost five percent on its first day.
Trip Chowdhry, who follows Facebook for Global Equities Research, said the “lackluster” opening was because Facebook failed to answer questions about how it will increase revenues and adapt to the mobile Internet.
“Management cannot sing and dance around the key issues,” he said.
The IPO gave Facebook a dizzying value of $104 billion at its market debut.
It raised more than $16 billion, making it the richest after that of financial giant Visa in 2008, according to Renaissance Capital. The addition of a possible stock “over-allotment” could boost the total to $18.4 billion.
Facebook itself sold 180 million shares and early investors in the company the remaining 241 million.
With its current market value, Facebook is now among the most valuable US companies, ahead of sector giants Amazon ($96 billion) and Cisco ($89 billion), and more than twice the value of Ford Motor Co. ($38 billion).
But it remains behind Google ($196 billion) and Apple ($496 billion).
Under the share plan, Zuckerberg holds 55.8 percent of the voting power of Facebook shares, and over 18 percent of the value of the company.
One of the shadows hanging over Facebook is concerns over privacy.
Some consumer and privacy advocates say Facebook has been too loose with user data, and hope that as a publicly traded company, it may change its tune.
The IPO’s net proceeds to Facebook were some $6.8 billion. The rest of the cash goes to Facebook insiders and others who made early investments in the social network, and to cover the IPO costs.
Facebook posted a profit of $668 million last year as revenue vaulted to $1.06 billion.