Facebook Stumbles Out of the Gate with Weak IPO

Anyone hoping that last week’s Facebook initial public offering (IPO) was going to trigger a new wave of Internet bubble hysteria came away disappointed after the social networking giant stumbled badly and only artificially reached its stock offering price of $38. Facebook’s opening day of Friday was also marred by technical glitches at NASDAQ, but the biggest embarrassment waited for Monday: On its second day of trading, Facebook shares opened below its offering price, causing even Facebook apologists to admit that things were going downhill.

Facebook’s IPO was closely watched and widely expected to trigger a new wave of tech stock excitement. But when the company went public on Friday, the stock price quickly fell below the initial offering price of $38, causing Facebook’s underwriters to frantically buy shares and drive up the price. They succeeded only in getting the price to rise just 0.6 percent, or 23 cents, above the initial offering price.

Meanwhile, NASDAQ apparently experienced some technical glitches Friday that contributed to a delayed opening of trading and stock-order backlogs for potential investors. Ironically, the issues were attributed to software problems, with NASDAQ CEO Robert Greifeld describing the day as “not our finest hour.” The US Securities and Exchange Commission (SEC) announced that it would investigate the event, which could charitably be described as “amateur hour.”

Over the weekend, some financial analysts argued that Facebook’s valuation of over 100 times its actual earnings is reasonable and tried to defend the company by noting that, for once, a tech company’s stock appeared to be fairly priced. Thus, news that the stock price hadn’t exploded on opening day wasn’t bad news; it was evidence of a maturing market. Best of all, the billions of dollars generated by this transaction went largely to Facebook, not to the financial services industry, they said.

Unfortunately, Monday happened. And while the events of Friday could be explained by various factors, the falling stock price in pre-trading hours on day two cannot. As the Wall Street Journal reports, “It is usually considered disappointing for a new stock to fall below its offer price so quickly, and particularly so for the most heavily traded IPO of all time.”

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