Arguably the most anticipated IPO of all time is now one of Wall Street’s most embarrassing screw ups. Be it the banks as the underwriters, the company itself (Facebook), or the media to wrongly and overly publicizing the IPO, the result can't be altered now.
Facebook shares, after a small rise of $0.23 on the first day, closed 8.9% lower at $31, following an 11% plunge on Monday (20th May).
At that price the company has shed more than $19 billion in market capitalization from its $38-per-share offering price last week. The IPO fail is mainly due to the lower future revenue forecasts of Facebook, as per the analysis of major Banks and underwriters.
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| The Initial Rise |
And according to sources, banks and underwriters had this report even before IPO release but they, kept the investors in dark until the IPO release.
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| The Final Fall |
Facebook itself urged the analysts working for some 33 underwriters to lower their estimates ahead of the IPO. All this has been due to the adverse effect on revenue due to major shift in the user base using the platform from mobile devices.
The company even issued, a revised prospectus on May 9, in which it cautioned about the possible negative impact of this shift. But the vague language, fell well short of an explicit warning of lower revenues or earnings.
Facebook has yet to make much revenue from Mobile advertising. Facebook, currently is facing loss in its revenue, because it is not showing advertisements on its mobile version, and user shifting to mobile version of Facebook. 85% of Facebook's current revenue comes from advertisements on the website.
The Fall wasn't the end, now the investors are even filling lawsuits against the underwriters and Facebook, for misleading them into great loss. Facebook IPO was a mess from day one, with NASDAQ delays and trading issues, and now with the shareholders suing the company and the plunging of shares.
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| Facebook's shares range (18th May - 25th May) |
Facebook was considered to jump way ahead from its opening price ($38), but it went the other way, it jumped downstairs rather climbing up.
Social network LinkedIn made its debut a year ago on 19th May, 2011, after raising $352.8 million. The stock hit a high of $115, before ending its first day at $94.25, more than doubling its IPO price of $45. We are discussing LinkedIn, because it went public in recent years being a private Social Networking Website earlier.
Internet majors like Google, Amazon and Yahoo went public in 90's and some other Tech company's like Microsoft and Apple, went public in the 80's (Microsoft in 1986, Apple in 1980), experienced a happy rise in the their share's value.
Some say that the Giant Social Network (Facebook) relying entirely on the youth for its success, made the IPO fall because its not the young population who handles the Wall street.
Some even say, that the Government played the evil. That Facebook was systematically overvalued in order to force it into a government bailout. Also, Morgan Stanley-Company who handled Facebook's IPO, doesn't holds a decent success record in helping companies go public. (eg : Fannie and Freddie bailout and IPO for General Motors) .
But the question is, "Why government wanted so?", to this Glenn Beck (GBTV tonight) offered a nice explanation.
He said in his show, that this was so that Facebook could be brought into the orbit of the government as one of many formerly powerful companies that had to take money in exchange for loyalty. Beck suggested that the reason the government would want this is because control over Facebook via public money would enable them to have huge amounts of control over the internet, which they would then use to stifle dissent."
But who knows what actually went wrong, we are here to make predictions, the real answer is still in Mr. Zuckerberg's pocket.
