Facebook IPO Receives Bad Press
The recent Facebook IPO on the Nasdaq was one of the most talked about news stories on Wall Street. The build up to the Initial Public Offering saw a lot of interest from investors of all sizes and reminded many of the Dot Com bubble. Once the hype subsided and a clearer picture of the problems that plaque the first days of trading came out, the popular social networks stock had dropped by 16 percent. The Mark Zuckerberg led company is currently trading at $31.91 and is down from the debut price of $38.
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This fall in share price has been attributed to several factors including initial technical glitches, selective distribution of information to clients and over-valuation by under writers.
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The problems for Facebook started early, even before the stock went public, when General Motors announced that they would not be placing any more advertisements with the social network because the company had not been able to deliver according to the auto-makers expectations. The bad news kept coming and a story broke about Facebook’s falling revenues. When the big day arrived on Friday, May 18, technical glitches stopped trade and investors were unable to place orders. This was eventually resolved but it seemed to have taken the steam out of the share as by close of trading the stock price was no were close to the 50% pop that many had expected.
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The IPO flop has raised questions about underwriters, methods of raising capital for tech companies and the role of small investors. After the Facebook public offering, several lawsuits have been filed against the underwriters Morgan Stanley and Facebook. Most of these have to do with claims that important information was only provided to certain clients before the start of trade. This also brought into focus how individual investors or small investors get cut out of the stock market by not getting information on time or not being offered a chance to invest early in a stock. Many individual investors experienced delays in stock purchase and had no idea if they owned stock and at what price they ended up buying the share.
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The method of the IPO has also been criticized because the tech company chose to go with a conventional stock offering. The method employed by Facebook seems to have left many retail investors holding the short end of the stick while institutional investors weathered the storm. Comparisons are being made with Google, who chose an auction method when they went public and allowed equal access to individual investors.
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The narrative of the entire saga has left individual investors with negative feelings about investing on Wall Street. This has impacted other upcoming IPO’s that have pushed back dates because of the bad press and shaken investor confidence. Facebook insiders and employees may have become instant millionaires and billionaires but the social networks first days on the Nasdaq have left a bad taste in investors mouths.
