High hopes were set for Facebook’s long awaited initial public offering. So far things haven’t gone how most people expected. There have been several strange occurrences since Facebook released its IPO. The first being Facebook’s decision to open for trading on a Friday. The typical stock market trading day starts at 9:30 a.m. It isn’t till an hour later that trading begins for the IPO’s listed on the Nasdaq exchange.
On Friday, May 18, Facebook’s IPO opened at 11:30 a.m., thirty minutes past its scheduled opening time. Opening at $38 per share, it reached a high of $45 per share during the day and set a new record for 458 million shares sold on the first day. Facebook was expected to earn $16 million as a publically traded company on Nasdaq, however the thirty minute delay was the first of several problems that led Bloomberg to declare this the worst large IPO of the decade. Nasdaq blamed the delay on a “technical error.” Following usual procedures, Nasdaq would match orders to buy with orders to sell but because of the technical difficulties, Nasdaq switched to another system so trading could begin at 11:30 a.m. Due to the change in the system, some orders weren’t processed and others were processed at incorrect prices. Late last week, Nasdaq was still working to untangle the mess.
Separate from Nasdaq’s “technical error,” investigations are taking place examining how Facebook and its bankers handled important financial information. Wednesday following the IPO, a group of investors filed suit claiming that Facebook’s financial outlook was “selectively disclosed” to big banks ahead of the IPO. Morgan Stanley, Goldman Sachs, Bank of America, and JP Morgan reduced their earnings outlooks for Facebook to very similar levels ahead of the IPO. There are also claims that Facebook overpriced its shares for the IPO. As of now, many of the problems from Facebook’s IPO are still under investigation but stocks are trading at a steady $31 per share.
The sudden, steep downturn of the stock has brought up many questions. The biggest question of them being, “Should you buy Facebook stock?” Personally, I am voting no, just because I don’t see a sustainable revenue model here… the advertising on Facebook has mixed results at best. In fact, GM recently pulled $10M in advertising from Facebook. The acquisition of Instagram, another tech company with a questionable valuation, did nothing to further bolster my confidence.