Facebook IPO: The social network goes public

Last Updated: Sat, May 19, 2012 06:21 hrs

It was barely a "like" and definitely not a "love" from Facebook investors as the online social network's stock failed to live up to the hype in its trading debut Friday.

One of the most anticipated IPOs in Wall Street history ended on a flat note, with Facebook's stock closing at $38.23, up 23 cents from Thursday night's pricing.

That meant the company founded in 2004 in a Harvard dorm room has a market value of about $105 billion, more than Amazon.com, McDonald's and Silicon Valley icons Hewlett-Packard and Cisco.

It also gave 28-year-old CEO Mark Zuckerberg a stake worth $19,252,698,725.50.

"Going public is an important milestone in our history," Zuckerberg said before he pushed a button that rang Nasdaq's opening bell from company headquarters at 1 Hacker Way 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."

But for many seeking a big first-day pop in Facebook's share price, the increase of six-tenths of one percent was a letdown.

"This is like kissing your sister," said John Fitzgibbon, founder of IPO Scoop, a research firm. "With all the drumbeats and hype, I don't think there'll be barroom bragging tonight."

Added Nick Einhorn, an analyst with IPO advisory firm Renaissance Capital: "It wasn't quite as exciting as it could have been. But I don't think we should view it as a failure."

Indeed, the small jump in price could be seen as an indication that Facebook and the investment banks that arranged the IPO priced the stock in an appropriate range.

11:00 pm:
Facebook shares rose less than expected on their first day of trade on Friday and huge order volume caused technical problems that marred the coming out party of the No 1 online social network.

Its shares were up 8 percent in early afternoon trading on the Nasdaq, after opening 11 percent higher and then rapidly heading south to touch their initial public offering price of $38. The gains were below market forecasts of as much as a 50 percent jump.

"We have got some unhappy guys out there," said Wayne Kaufman, chief market strategist at John Thomas Financial, a retail broker on Wall Street. "They were hoping for Facebook to be considerably better. I bet there are a lot of disappointed people in the market."

Analysts blamed the poorer-than-expected first-day showing on the vast number of shares floated and market weakness. General Motors' decision to pull paid-advertising from the social network, announced this week, also hurt.

"When you see what's happening with other social media stocks today, which are significantly down, as well as looking at Facebook trading flat, we think it has traded obviously at the high end," said Destination Wealth Management CEO Michael Yoshikami.

"It's a rich valuation, particularly given the advertising pressure they're under now. Advertising revenue has grown significantly slower over the past few years, and that's punctuated by GM's decision to stop advertising on Facebook."

"We're not buyers at $38 (the listing price), particularly considering that most of their business is in mobile and they haven't figured out how to make money yet."


Facebook's IPO has Wall Street abuzz. But what about Facebook's 900 million users?

Some were debating whether they should get in on the buying frenzy. Others were guessing the closing price. Several were lamenting that they hadn't thought to invent the social media site themselves.

A few treated even the company like a person, congratulating it on the public offering as they might a friend on the birth of a child.

"Hey Facebook! Have a good first day on the stock market," a swimming pool maintenance and repairman from Petaluma, California, wrote from a mobile device. Within two hours, eight other Facebook users had "liked" the post.

Not all Facebook users were obsessed with the company's entrance to the stock market. The went along with their everyday lives, posting photos of drunken debauchery that they might one day regret, weighting in on the presidential election, celebrating Haitian flag day or just welcoming the start of the weekend.

- Scott Mayerowitz, AP Business Writer

9:15 am: Blessing Oguguam of Nashville, Tennessee, a vice president in business banking for Wells Fargo who has worked in commercial lending for 15 years, said he was not comfortable buying Facebook stock:

"I'm thinking it's great for now. But 10 years from now, is that crave still going to be there? So if I go ahead and invest now, I know Facebook is not producing any product. It's just a social media site. So in 10 years to come, if this hype dies down, then what happens to my investment?"

9:00 pm: Facebook topped 100 million shares traded in the first four minutes after its debut on the Nasdaq. By comparison, Amazon.com had traded about 2.2 million shares and Google about 2 million. Facebook went on to pass 150 million shares traded about 15 minutes after its debut on the Nasdaq. 

8:40 pm: CNBC reports that while Facebook opened with initial heavy volume of 82 million shares in the first 30 seconds, the shares fell after about a half-hour of trading. The shares touched the IPO price of $38 a share after opening at $42.05.

8:30 am: The reaction online: Facebook's IPO was popular, but not that popular, on Twitter. God, a retiring Chicago Cubs pitcher, Kanye West's new film and Haitian Flag Day all were trending higher in the US.

Down at No 9 was "$FB," a tag used to talk about the offering.

At the top of the list? The hashtag "ThingsWeAskGod2helpUsWith," along with news about the possible retirement of Cubs pitcher Kerry Wood and "Cruel Summer," the name of Kanye West's short file that will debut at the Cannes Film Festival.

The IPO was No 2 in trending Google searches, right after the death of disco queen Donna Summer.

Note: Facebook Inc shares opened at $42.05 (the IPO price was $38)

8:20 pm: Facebook Inc. and its shareholders raised $16 billion in an initial public offering of stock. It is the largest IPO by far for an Internet company. The amount raised comes from how many shares were sold by the company and its early investors - 421.2 million - at the IPO price of $38.

Shares sold in an IPO are typically just a fraction of the total shares a company has issued. That's why, at an IPO price of $38 per share, all of Facebook's share give the company an initial market value of $104 billion.

More shares, known as an overallotment, have been set aside if demand is heavy. If they are all sold, the IPO will raise $18.4 billion.

Here are the rest of the top 10 Internet IPOs, according to Renaissance Capital, an IPO investment adviser:

Google Inc., IPO on August 18, 2004, $1.67 billion raised.

Yandex NV, IPO on May 23, 2011, $1.3 billion raised.

Infonet Services Corp. (now part of BT Group PLC), IPO on December 15, 1999, $1.08 billion raised.

Shanda Games Ltd., IPO on September 24, 2009, $1.04 billion raised.

Zynga Inc., IPO on December 15, 2011, $1 billion raised.

Giant Interactive Group Inc., IPO on October 31, 2007, $887 million raised.

Renren Inc., IPO on May 3, 2011, $743 million raised.

Groupon Inc., IPO on November 3, 2011, $700 million raised.

Orbitz Worldwide Inc., IPO on July 19, 2007, $510 million raised.

8:10 pm: Facebook CEO Mark Zuckerberg had outlined five core values for Facebook in a letter to potential investors that appeared in regulatory filings Facebook Inc. first submitted in February for its IPO.

Here is that portion of the letter:

Focus on Impact

If we want to have the biggest impact, the best way to do this is to make sure we always focus on solving the most important problems. It sounds simple, but we think most companies do this poorly and waste a lot of time. We expect everyone at Facebook to be good at finding the biggest problems to work on.

Move Fast

Moving fast enables us to build more things and learn faster. However, as most companies grow, they slow down too much because they're more afraid of making mistakes than they are of losing opportunities by moving too slowly. We have a saying: 'Move fast and break things.' The idea is that if you never break anything, you're probably not moving fast enough.

Be Bold

Building great things means taking risks. This can be scary and prevents most companies from doing the bold things they should. However, in a world that's changing so quickly, you're guaranteed to fail if you don't take any risks. We have another saying: 'The riskiest thing is to take no risks.' We encourage everyone to make bold decisions, even if that means being wrong some of the time.

Be Open

We believe that a more open world is a better world because people with more information can make better decisions and have a greater impact. That goes for running our company as well. We work hard to make sure everyone at Facebook has access to as much information as possible about every part of the company so they can make the best decisions and have the greatest impact.

Build Social Value

Once again, Facebook exists to make the world more open and connected, and not just to build a company. We expect everyone at Facebook to focus every day on how to build real value for the world in everything they do.

8:05 pm: The ripple effect: Other tech IPOs?

Ann Sherman, an expert on initial public offerings and an assistant professor in the department of finance at the DePaul University, said that the IPO will lead other technology companies to go public.

"Facebook is unique in so many ways, but its IPO will certainly inspire other companies to try an IPO if they are already thinking of it," she said.

But other companies won't get a reception anything like Facebook's, she said. They will face much more muted investor demand, like that for Groupon and Linkedin, she said.

8:00 pm: One argument for buying Facebook shares...

Facebook will sell on the open market for 20 times the company's projected 2012 revenue, based on its IPO price of $38. Google, by comparison, is trading at about six times its projected revenue for this year.

But Facebook hasn't been as aggressive as it could have been about selling ads or finding other ways to make money where its visitors, on average, dwell for an average of 6.5 hours per month, according to comScore Inc.

Instead of ramping up revenue, Facebook has concentrated on attracting users - an emphasis that is bound to pay off.

Facebook also has a big personnel advantage: Sheryl Sandberg, hired as the company's chief operating officer in 2008. She played a key role in expanding Google's advertising system during its first few years as a publicly held company, a period when the company's stock hit its peak so far.

- Michael Liedtke, AP Technology Writer

7:46 pm: The IPO price values Facebook at $104 billion. By comparison, here are the top five companies in the Standard & Poor's 500 index by market value, based on Thursday's closing stock prices:

Apple - $496 billion

Exxon Mobil - $383 billion

Microsoft - $250 billion

IBM - $229 billion

Wal-Mart Stores - $210 billion

7:40 pm: Lots of Lexus', Mercedes' and BMWs coming out of FB employee parking lots, but also Hondas - that won't be the case much longer. All the facebook employees driving by the throng of reporters have their windows closed, reports Reuters.

7:39 pm: Frederick Nolde, 31, of Richmond, Virginia, is in New York for meetings. He said that he bought 100 shares of Facebook. He thinks the company is worth $100 billion, but he said the real question is how Facebook performs with mobile users.

"If they can figure that out, they'll do well," he said.

- Joseph Pisani, AP Business Writer

7:32 pm: Status update - On Mark Zuckerberg's Facebook page, under recent activity, was this, posted recently:

"Mark listed FB on NASDAQ."

7:31 pm: At Nasdaq's streetfront location in Times Square, Dennis Hitchings, a retiree from Columbus, Ohio, was peering through the window at Nasdaq's board of constantly changing stock prices.

He said that he doesn't think Facebook is worth $100 billion - "They don't have the revenue" - but he did say he would buy the stock at $38.

- Joseph Pisani, AP Business Writer

7:30 pm: How Facebook stacks up against one of its Internet rivals, Google, based on the most recent available data:

Annual revenue - Google $38 billion, Facebook $3.7 billion.

Advertising revenue - Google $36.5 billion, Facebook $3.2 billion.

Annual net income - Google $9.7 billion, Facebook $668 million.

Employees - Google 33,100, Facebook 3,500.

7:15pm: Facebook's splashy debut is the culmination of eight years of breakneck growth, as it emerged from Mark Zuckerberg's Harvard dorm room to become the No. 1 social network, linking nearly 1 in 7 people on the planet.

Here are key facts about what could be the second-largest IPO in US history, exceeded only by Visa Inc's.

It surpasses General Motors' share offering if, as widely expected, the full over-allotment, or "greenshoe," is taken up, enabling Facebook to raise a maximum of $18.4 billion.

Price: $38 a share

Shares sold: 421.2 million

63.2 million (to be sold if needed)

Float: 15 percent to 18 percent

Amount raised: $16.0 billion

$18.4 billion, including greenshoe

Market value: $104 billion

Lead advisers: Morgan Stanley, JPMorgan, Goldman Sachs

Key facts about the company:

Original name: thefacebook.com

Headquarters: Menlo Park, California

Employees: 3,200 as of December 31, 2011

Revenue: $3.71 billion in 2011

Earliest investors: PayPal co-founder Peter Thiel, who invested $500,000 in 2004, followed by Accel Partners, which invested $12.7 million in 2005

Biggest stakeholder: Mark Zuckerberg, who controls a 55.8 pct voting stake

Other top stakeholders: Greylock Partners, Meritech Capital Partners, Digital Sky Technologies; entrepreneurs Reid Hoffman, Mark Pincus, Sean Parker

Number of users: 900+ million active monthly users

Average time spent on Facebook: Worldwide users spend about 6 hours a month; 7 hours in United States.

7:00 pm: Opening bell - Wearing his trademark hoodie and standing before a huge crowd in Menlo Park, California, CEO Mark Zuckerberg symbolically opened trading on the Nasdaq Stock Market.

Facebook stock won't begin trading until later in the morning. The broader market opened slightly higher, with the Nasdaq composite index up about 10 points, or 0.3 percent.

6:45 pm: The ripple effect: California Cash

Besides minting Internet billionaires, the Facebook IPO should provide a little help for the cash-starved state of California.

The state's nonpartisan Legislative Analyst's Office says the IPO will generate $1.6 billion to $2.6 billion for the state through the middle of next year as shareholders cash in their stock.

California badly needs the money: Gov. Jerry Brown said over the weekend that the projected state deficit has swelled to $15.7 billion for the coming fiscal year. In January, it was projected at $9.2 billion.

6:30 pm: Pop and drop

Several of last year's must-have IPO stocks aren't exactly must-haves anymore.

Pandora, an Internet radio company, went public June 15 at $20 a share. You could have bought the stock during the day for $26. It's now trading under $11.

Groupon, the online daily deal company, priced its stock at $20 a share on Nov. 4. It traded above $31 the first day and is now under $13.

And LinkedIn, a social network for professionals, more than doubled from its $45 offer price within minutes of hitting the market last May 19. It reached $122.70 on the first day before closing at $94.25. It's back to about $105.

— Dave Carpenter, Associated Personal Finance Writer

6:15 pm: The kid billionaire

CEO Mark Zuckerberg is selling about 30 million shares of Facebook as part of the initial public offering. At $38 each, he pockets $1.15 billion. He will remain Facebook's largest shareholder, will more than 32 percent of Facebook's total shares. At the $38 share price, his stake in the company is worth $19.1 billion.

Zuckerberg will control the company with 56 percent of its voting stock as a result of agreements he has with other shareholders who promise to vote his way.

Here's his bio:

AGE: 28. Born May 14, 1984.

RESIDENCE: Palo Alto, California, Grew up in Dobbs Ferry, New York

EDUCATION: Philips Exeter Academy, class of 2002. Studied computer science at Harvard University before dropping out.

PROFESSIONAL CAREER: Co-founded Facebook in his Harvard dorm room in 2004. Has served as CEO since.

FAMILY: Mother, Karen; father, Edward; sisters Arielle, Donna and Randi Zuckerberg.

6:00 pm: Next Stop: 1 billion

Have a look at how explosively Facebook has grown. According to the company, this is when the site passed milestones for its number of active users, defined as someone who logs on at least once a month:

1 million — End of 2004.

5.5 million — End of 2005.

12 million — End of 2006.

20 million — April 2007.

50 million — October 2007.

100 million — August 2008.

150 million — January 2009.

175 million — February 2009.

200 million — April 2009.

250 million — July 2009.

300 million — September 2009.

350 million — End of 2009.

400 million — February 2010.

500 million — July 2010.

608 million — End of 2010.

750 million — July 2011.

800 million — September 2011.

845 million — End of 2011.

901 million — March 2012.


Hedge fund view: He's in

Andrew Schneider, a hedge fund adviser and CEO of San Francisco-based Schneider Family Office, was busy selling shares of Apple and LinkedIn on Thursday to free up cash for buying Facebook.

He planned to spend at least $20 million, or 8 percent of his firm's liquid assets.

"You've got 900 million users, and you've got real solid revenue, and the company is earning money," Schneider says.

He's not concerned about plowing such a large proportion into one company: "We feel very strongly and very comfortably about this." Nor is he rattled by General Motors' announcement that it would stop buying display ads on Facebook. He calls that "a very, very small amount."

Schneider points out that there were naysayers when Google went public in 2004, priced at $85 a share. It closed Thursday at $630.

"A lot of people went on the short side of Google when it opened," says Schneider, who is also CEO of Global Hedge Fund Advisors. "And boy, were they wrong."

- Christina Rexrode, AP Business Writer


Hedge fund view: Steering clear

Whitney Tilson says his hedge fund, T2 Partners, avoids newly public companies as a rule because companies tend to go public only when things are going well.

T2 Partners prefers to look for battered stocks that it can scoop up cheaply. It bought more stock in JCPenney this week. Tilson admits, though, that avoiding initial public offerings doesn't always work. Google, he says, "turned out to be a great deal."

Tilson said he expects Facebook's stock will rise over the long term. Facebook, he says, "does look and smell a lot like Google."

Christina Rexrode, AP Business Writer


Instead of red carpet, red ink

Facebook isn't getting much of a welcome to the neighborhood.

Thursday was one of the worst days of the year for stocks. The Dow Jones industrial average dropped 156 points and has fallen 11 of the past 12 days, mostly because investors are nervous about turmoil in debt-burdened Greece.

The Nasdaq composite, representing the stock exchange where Facebook will trade, fell 2 percent on Thursday. The composite was up almost 20 percent for the year at the end of March, but that gain has withered to 8 percent.

- Erin McClam, Associated Press's (AP) Financial Markets Editor

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