Skip to content
Tweak Your Biz home.
MENUMENU
  • Home
  • Categories
    • Reviews
    • Business
    • Finance
    • Technology
    • Growth
    • Sales
    • Marketing
    • Management
  • Who We Are

Facebook’s Failed IPO

By Simon András Published January 18, 2013 Updated October 2, 2022

On the day of Facebook’s initial public offering (IPO), on May 18th, 2012, David Ebersman, the company’s Chief Financial Officer, valued the stock at $38 per share, making it one of the largest IPOs in history, raising $16 billion. It set a new record for the trading value of an IPO, and had been underwritten by three of the biggest banks in America – Morgan Stanley, JP Morgan, and Goldman Sachs.

Demand was thought so high that the company announced, two days before the IPO, that it would sell 25% more shares than had originally been planned. When the trading began, stocks shot up to $45. With all the hype building up to it, then, for what was, after all, the transformation of the world’s most popular social network from a private company into a public one, it might seem surprising that things went so drastically wrong.

But go wrong they did. After that initial surge the stock value dropped quickly from $38 to $32. Those banks that underwrote the IPO had to jump in and buy millions of shares between themselves to keep the value up, but that only slowed things down. During the ninety days after the IPO, Facebook’s market value dropped more than $50 billion. At its lowest point, in September, the stock was valued at just $17.55. So what went wrong, and why?

Great Expectations

Hype is a fickle thing. On the one hand, if something lives up to its hype, its popularity is likely to rise and rise. If, however, the eventual response is one of disappointment, the long-accumulated excitement can dissipate quickly. The last thing a company wants on the day it becomes public is bad publicity.

Even before the IPO, though, there was some skepticism of the high valuation, which some see as a response to LinkedIn’s IPO, in which a 110% rise in stock value due to mispricing resulted in $350 million effectively given away to investors. On the big day, the NASDAQ experienced technical problems, undermining confidence in the stock. When the IPO was then described by the media as disappointing, a self-fulfilling prophecy began to unfurl.

The next blow came when Wall Street regulators began an investigation to discover whether or not the banks underwriting the IPO had improperly shared information with select clients. Investors who had already lost money pounced on the issue and lawsuits were filed – hardly encouraging for future investors.

Deeper Issues

A more underlying reason for the failing IPO is Facebook’s position as an advertiser. The company had announced in its prospectus that they had 2.7 billion daily ‘likes’ and comments, but around 54% of those likers and commenters are younger than 44, with a large proportion in the lower half of that demographic. Young people don’t generally have much money, and so Facebook’s advertising platform is less attractive to clients than those of its rivals – Google, say, whose Google Wallet can ascertain what a customer wants, what that customer buys, and what that customer is willing to pay. Facebook’s revenue has always mostly come from advertising, though, and now that it’s become public, it needs to convince investors that it knows it is a business as well as a social network.

Light in the Tunnel

Despite this turmoil, recent signs point north. Bernstein Research Analyst, Carlos Kirjner, has recently determined that, using the ever driving growth delivered by mobile advertisements, Facebook can increase its number of ads without the degeneration of the overall Facebook experience for its users. And although he advises caution, pointing out that the long-term success of social advertising has yet to be proven, Facebook’s stock has recently been increasing with alacrity.

Although it has yet to regain its original IPO price, stock this week has surpassed the $30 dollar level, ending at $31.72 on Friday the 11th. What’s more, the quarterly performance review being announced later this month is expected to be a positive one, and positive momentum is the surest bet for investors.

After a catastrophic IPO which could have been avoided, or at least limited, the prospects for the future look brighter than ever. Of course investing is still a risk – but at this point it might just be a risk worth taking.

Did you like this article?  Write for the site. Sign up for our RSS.

Connect:                        

Images:  ”NEW YORK – MAY 18 Sign announcing Facebook IPO  / Shutterstock.com“

 

Posted in Finance

Enjoy the article? Share it:

  • Share on Facebook
  • Share on X
  • Share on LinkedIn
  • Share on Email

Simon András

Simon is the owner of Simon's Online Marketing an online marketing agency focusing on clients in difficult niches and the Eureka Network.

Visit author facebook pageVisit author twitter pageContact author via email

View all posts by Simon András

Signup for the newsletter

Sign For Our Newsletter To Get Actionable Business Advice

* indicates required

Related Articles

Finance

Mastering Market Trends: How to Read and Interpret the DJIA Chart

Ayodele Johnson July 26, 2025
Finance
Management
Technology

Role‑Based Digital Cards: Automate Employee Expenses in Minutes

Hanna Kim July 25, 2025
Finance
Technology

Strengthening Your Financial Institution’s Data Infrastructure to Meet Global Compliance Standards

Nate Nelson July 24, 2025

Footer

Tweak Your Biz
Visit us on Facebook Visit us on X Visit us on LinkedIn

Privacy Settings

Company

  • Contact
  • Terms of Service
  • Privacy Statement
  • Accessibility Statement
  • Sitemap

Signup for the newsletter

Sign For Our Newsletter To Get Actionable Business Advice

* indicates required

Copyright © 2025. All rights reserved. Tweak Your Biz.

Disclaimer: If you click on some of the links throughout our website and decide to make a purchase, Tweak Your Biz may receive compensation. These are products that we have used ourselves and recommend wholeheartedly. Please note that this site is for entertainment purposes only and is not intended to provide financial advice. You can read our complete disclosure statement regarding affiliates in our privacy policy. Cookie Policy.

Tweak Your Biz
Sign For Our Newsletter To Get Actionable Business Advice
[email protected]