With Almost 1 billion users, Facebook Opened for public trade on Thursday March 17. As the most anticipated IPO (Initial Public Offering) in history, the stock was priced at $38/share which put a price on the comany at $104 billion.
So what is the stock trading at today (March 23, 2012) less than one week after it's offering? Facebook hit as low as $30.00 and may continue to stumble.
To explain it simply picture Facebook as a private company (meaning only certain investors, shareholders, etc. are allowed to invest with the company). When a private company decides to go public, anyone can buy the stock and they get private investors to underwrite for them.
- Underwritting - When companies decide to offer stock to the public they use an investment bank to do the underwritting for them. This helps acurately place a value "price" on the comany.
So who did the underwritting?
Morgan Stanley, Goldman Sachs, and JP Morgan Chase all did the lead underwritting for Facebook. These banks worked together to come up with the $38 pricetag on Facebook.
So why was Facebook's IPO such a bust?
A number of reasons why Facebook IPO has been a blunder but 5 main reasons include:
When a company decides to go public, usually alot of hype comes along with it. Well Facebook had talk about going public for over a year, which means it had all that time for people to digest the information. When the value of $100 billion was first place on Facebook excitement broke out and this created the same gossip that a cheerleader spreads throughout a high school. Well just like gossip in high school, give it some time and people will forget about it. A year to digest the news was well enough for people to handle the pricetag.
2. Nothing left for the little guys
Before companies offer their stock public, they offer it to private entities like: Angel investors, employees, executives, Investment banks, etc. Well to make a long story short, they hogged it all. Facebook's private shareholders left nothing for the public investor. So when the stock opened, those who owned the private shares sold (for a nice quick profit) and this explains why we saw a quick drop in the price.
Remember "Going Green"? Remember "Beanie Babies"? What happens in a fad? People like something tremendously to the point that they get sick of it after time passes. Facebook is certainly not in comparison to Beanie Babies but it is the biggest global fad today. It is liked so much that people may begin to get sick of it. Status updates, news feeds, responding to messages, becomes tiresome and "old". Will Facebook go extinct? No. Will it continue to grow at this pace? No. Will Facebook get old? Yes.
Big Tech Companies: Apple, Google, Oracle, IBM, Linkedin, Amazon, Ebay... Facebook? Think of all those companies and consider how they generate revenue. The only one of these that may be debatable is Linkedin and even they generate revenue through premium subscriptions, job advertisements, and more.
Facebook does not have a viable monetized system. Advertising, analytics, and what else? A revenue stream that is deffinitive and plentiful is what Facebook needs most. In the event Facebook decides to charge for an account, the contemplation of it being a necessity is not necessary.
Facebook only offers the consumer one thing: A social network. Where as Apple offers Software, Products, Retail, Wholesale, Analytics, and the list goes on; Facebook still only offers a Social network to consumers. Facebook is a very good Steak, but companies like Google and Apple Give you the 7 course meal including damn good drinks.
In the end, Facebook will be a success story. It will be around years to come. But Facebook will not be the massive tech giants we have today.
Editor: Tim Plett
All statements are opinionated and information is not to be taken as investment advice
Funny to see the stock trading below $20.00 today
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