Tech Watch: Facebook IPO

Category:  Tech Watch
Friday, June 8th, 2012 at 1:45 PM
Tech Watch: Facebook IPO by Michael Haas

Some say it was simply a flop; others blame NASDAQ. Regardless of what happened, everyone’s eyes are on the social media powerhouse, Facebook, and the string of negative events surrounding its entrance into the stock market. The Facebook (FB) stock is now public and also getting a lot of attention from businesses and investors. Even local businesses here in Erie are interested in the initial public offering (IPO) and looking into what all the hype is about. .

In February, Facebook CEO Mark Zuckerberg, 27, announced the plan for the company’s IPO. He also reported that the estimated value of Facebook, which was established eight years ago, is $100 billion, the highest valuation for the IPO of a tech company.

After filing the IPO paperwork, Zuckerberg and his management team embarked on a roadshow with destinations including cities such as Boston and Chicago, to present company information to potential investors or fund managers. Usually, the success of the roadshow is an important part of an offering since it’s essentially a high-stakes sales pitch. As important as the roadshow was, Zuckerberg still wore his trademark black hoodie, which rubbed a few businessmen the wrong way. They thought his attire for the roadshow seemed immature, and he shouldn’t have been dressed as he was for such an important event. However, the show went on.

Some of the topics that came up in the roadshow’s question-and-answer phase were about the purchase of Instagram as well as possible mobile-device revenue in the future. Investors were concerned because Instagram doesn’t bring in any revenue and neither does the mobile version of Facebook at this time. Months after the roadshow, Facebook moved forward with its sights set on the stock market.

FB stock became available for public purchase May 18 with an IPO price set at $38 per share by a series of underwriters, including Morgan Stanley, JP Morgan, and Goldman Sachs. Those well-known FB underwriters are facing some legal trouble because of how they wrote the IPO. Currently, Facebook and all three of the underwriters are being sued. According to ABC News, Facebook investors are claiming that: “the registration statement and prospectus filed with the Securities and Exchange Commission ahead of the IPO were ‘false and misleading’.”

According to the suit, Facebook allegedly did not disclose that it told the underwriters to decrease the performance estimates for 2012. The reduction occurred because an increased number of people are now using mobile apps, which don’t provide advertising revenue. The lack of communication was not the only problem surrounding the underwriters—there was selective communication.

The suit also claims Morgan Stanley and Goldman Sachs alerted clients of the decreased earnings forecasts for Facebook. The information didn’t get added to the prospectus and registration statement, which should have been included according to law.

Some investors are unhappy with the special treatment, and that’s not the only thing investors may be unhappy about. The morning of the debut of FB trading at NASDAQ was to begin at 11 a.m., but it was delayed by 30 minutes because NASDAQ hadn’t processed initial purchase and sale orders in the correct manner. Some say that the delay was a reason the stock didn’t do well initially, while others suggest it didn’t affect the stock performance much.

According to ABC News, “Facebook stock lost nearly 20 percent of its value in its first three days of trading on the NASDAQ.” Stocks are all about supply and demand, and Facebook hasn’t been seeing the demand it was hoping for. Although the supply is copious, the demand isn’t based on the troubles experienced with introducing it.

Ben Breedlove, a recent Penn State Erie, The Behrend College business economics graduate, said he predicted the Facebook flop. “How can a company expect to maintain intrinsic value when its revenue sources are advertisements and its popularity? I didn't expect for it to be a high-performer from the start.”

But amid all of the negativity surrounding the Facebook IPO, here at Epic Web Studios, we see things a bit different. “The Facebook IPO is excellent for the opportunity to further the advancement in technology and social media. It affects our office directly because business clients are now a focus of the platform,” said David Hunter of Epic Web Studios.

Financial Advisor John F. Evans of Evans Advisory Services, Inc, thinks the future of Facebook will depend on cost and advertising. “I don’t think anyone can predict at this time where the value of FB will go.  It has been successful to date in large part because it is free to use and the advertising is minimal.  If either of those changes, I predict people will migrate to a new network.”

Regardless of what happens to Facebook and its newly traded stock, all eyes will be on Zuckerberg and his company. Local and global investors will watch what happens next, and see how the FB stock could benefit their company.

-Leah Semroc

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