In this Business English News lesson: we follow up on Facebook’s recent IPO.
After a long wait, and even more hype, Facebook joined NASDAQ on May 18th; although it wasn’t all smooth sailing for Zuckerberg and friends. After opening 30 minutes late, and climbing briefly from the opening price of $38 a share; reality set in.
After a long wait, and even more hype, Facebook joined NASDAQ on May 18th; although it wasn’t all smooth sailing for Zuckerberg and friends. After opening 30 minutes late, and climbing briefly from the opening price of $38 a share; reality set in. The Chicago Tribune had this to say:
Facebook’s IPO fizzled as the shares fell below the offering price, hit by technical glitches that disrupted first-day trading and drawing lawsuits targeting underwriters for selectively sharing changes made to analyst forecasts.
Since the problems of the first day, things haven’t improved, with billions of dollars being wiped off of its market value. As McLean’s Magazine explains:
Since its market debut Facebook has shed approximately $25 billion in value roughly equivalent to the market capitalization of Morgan Stanley, the lead underwriter of Facebook’s IPO.
This rocky start brought back memories of the mid-90s, when companies with only a dot-com suffix and a strong sales pitch were able to lure investors en masse. From The Republic:
Facebook’s IPO, like Netscape’s in 1995 and Google’s in 2004, was supposed to be a shining monument to Silicon Valley ingenuity. Instead it has dredged up unpleasant memories of the dot-com bust. And it has magnified doubts about Facebook’s business prospects and the experience and judgment of its management team.
The dramatic price drop and controversy surrounding Facebook’s stock price has many wondering how its shares could have been valued so high in the first place.
PC-World revealed:
The underwriters – at the last minute – increased the size of the offering and jacked up the offer price to an astronomical value, compared to what the company actually earns.
What’s more, with the SEC and other federal bodies beginning to dig around, Facebook is likely to have its hands full for the foreseeable future. From PC-Advisor:
A Morgan Stanley analyst had cut its revenue forecast for Facebook in the days before the offering, and may have only told top clients verbally, rather than spreading the word publicly. If true, this action could be interpreted as an infraction of financial laws, and now spokesmen from U.S. House and Senate committees are looking into the matter.
Zuckerberg is at risk of losing even more friends as each day seems to bring about yet another insider trading accusation, or lawsuit. The New York Post commented:
Another group of disgruntled Facebook investors has reportedly sued the social media guru, saying he made out like a bandit over the site’s botched IPO. This latest class-action lawsuit claims Zuckerberg knew Facebook was horribly overpriced at $38 per share when trading began last month.
However, all of the finger-pointing has led some analysts to wonder when the blame game is going to end. Value Walk suggests:
Even though Zuckerberg did sell a large number of shares on the open, he has most of his wealth tied up in the stock. Why would he want the price to tank? He does not want to lose money. Clearly, this was not some intentional plan to scam investors.
While much of the media attention has been on the scandal surrounding share prices, some think that too much of a big deal is being made of the negative start and that in many ways it was all to be expected. The Huffington Post points out:
The debacle was not the IPO but all the whining by speculators who didn’t make money,” says Lise Buyer, who helps companies plan initial offerings.
To date, Facebook’s stock has plummeted about 38%, giving it a value of just over $50 billion. But, in the months ahead, if prices improve, a lot of fresh millionaires will be able to cash out. As CNET concludes:
Some will bolt to do their own startups. But some will take another popular career path for the young and rich: They’ll become full-time angel investors, pouring more money into companies trying to become the next Facebook.