Facebook falls flat in public debut

BARBARA ORTUTAY

AP Tech­nol­ogy Writer

NEW YORK — After all the hype, Facebook’s first day as a pub­lic com­pany ended where it began.

In its much-anticipated debut on the Nas­daq Stock Mar­ket, Facebook’s stock closed Fri­day at $38.23, up 23 cents. It had been priced at $38 per share on Thurs­day night.

After an anxiety-filled half-hour delay, its stock began trad­ing on the Nas­daq Stock Mar­ket for the first time as investors were finally able to put a dol­lar value on the com­pany that turned online social net­work­ing into a global cul­tural phenomenon.

The stock opened at 11:32 a.m. at $42.05, but soon dipped to $38.01. By noon, it was up again at $40.40, a 6 per­cent increase. It flut­tered through­out the after­noon, but it never hit the double-digit jump that many Facebook-watchers had expected. By the end of the day, more than 500 mil­lion shares had changed hands

The clos­ing price means Face­book is worth about $105 bil­lion, more than Amazon.com, McDon­alds and sto­ried Sil­i­con Val­ley icons Hewlett-Packard and Cisco.

But as many peo­ple looked for a big first-day pop in Facebook’s share price, the single-digit increase was some­what of a letdown.

“It wasn’t quite as excit­ing as it could have been,” said Nick Ein­horn, an ana­lyst with IPO advi­sory firm Renais­sance Cap­i­tal. “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 ini­tial pub­lic offer­ing priced the stock in an appro­pri­ate range. It’s also a sup­ply and demand issue. Face­book offered nearly 20 per­cent of its avail­able stock in the IPO, so there was enough to meet demand. In com­par­i­son, Google offered just 7.2 per­cent of its stock when it went pub­lic in 2004 — and rose 18 per­cent on day one.

To IPOdesktop’s Fran­cis Gask­ins, it means mom-and-pop investors are becom­ing “much more edu­cated and care­ful” about not buy­ing into hype. And he said that the banks tak­ing Face­book pub­lic have learned from the 10 IPOs of social media com­pa­nies in the past year and are bet­ter able to gauge how much stock to make avail­able in an ini­tial offering.

It might not have been pos­si­ble for the social net­work to live up to the hype that led up to its IPO. It’s Face­book, after all, a place where peo­ple are emo­tion­ally invested in end­less online diver­sions and rekin­dled friend­ships, an end­less depos­i­tory of baby pho­tos, favorite songs and fleet­ing memories.

“It’s prob­a­bly one of the first times there has been an IPO where every­one sort of has a stake in the out­come,” said Gart­ner ana­lyst Brian Blau. While most Face­book users won’t see a penny from the offer­ing, they are all inti­mately famil­iar with the company.

Ear­lier Fri­day, the company’s 28-year-old CEO, Mark Zucker­berg, smiled as he rang the open­ing bell from Facebook’s head­quar­ters in Menlo Park, Calif. Sur­rounded by cheer­ing Face­book employ­ees and wear­ing his sig­na­ture hoodie, he pushed the but­ton that sig­nals the open­ing of the stock mar­ket in New York. The morning’s events fol­lowed an all-night “hackathon” at the com­pany, where engi­neers stayed up cod­ing soft­ware and con­jur­ing up new ideas for Face­book and its 900 mil­lion users.

“Right now this all seems like a big deal. Going pub­lic is an impor­tant mile­stone in our his­tory. 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,” Zucker­berg said. “In the past eight years, all of you out there have built the largest com­mu­nity in the his­tory of the world. You’ve done amaz­ing things that we never would have dreamed of and I can’t wait to see what you guys all do going forward.”

After­ward, employ­ees tried to get back to busi­ness as usual, build­ing the com­pany under immense new pres­sure to meet share­hold­ers’ expec­ta­tions. To remind every­one not to get caught up in the hoopla, Facebook’s employ­ees were given t-shirts that read “Stay focused & keep hacking.”

On Thurs­day, Face­book and the invest­ment bankers set­tled on a price of $38 per share. The com­pany and its early investors raised $16 bil­lion in the offer­ing, which val­ued Face­book at $104 bil­lion. That makes Face­book the most valu­able U.S. com­pany to ever go public.

Now, the stock mar­ket will begin assign­ing a dol­lar value to Face­book that will rise and fall with investor whims. It will be sub­ject to broad eco­nomic forces and held account­able for profit it earns —or loses— from one quar­ter to the next.

But Face­book is a rare com­pany whose IPO tran­scends Wall Street’s money lust. It is a cul­tural touch­stone for the way tech­nol­ogy reshapes our lives. Since its start as a scrappy net­work for col­lege stu­dents, Face­book has come to define social net­work­ing by get­ting peo­ple around the world to share every­thing from pho­tos of their pets to their deep­est thoughts.

It has done so while becom­ing one of the few prof­itable Inter­net com­pa­nies to go pub­lic recently. It had net income of $205 mil­lion in the first three months of 2012, on rev­enue of $1.06 bil­lion. In all of 2011, it earned $1 bil­lion, up from $606 mil­lion a year ear­lier. That’s a far cry from 2007, when it posted a net loss of $138 mil­lion and rev­enue of $153 mil­lion. The com­pany makes most of its money from adver­tis­ing. It also takes a cut from the money peo­ple spend on vir­tual items in Face­book games such as “FarmVille.”

Facebook’s pub­lic debut marks a new mile­stone in the his­tory of the Inter­net. In 1995, Netscape Com­mu­ni­ca­tions’ IPO gave peo­ple their first chance to invest in a com­pany whose graph­i­cal Web browser made the Inter­net more engag­ing and eas­ier to nav­i­gate. Its hotly antic­i­pated IPO lit the fuse that ignited the dot-com boom. That explo­sion of entre­pre­neur­ial activ­ity and invest­ment cul­mi­nated five years later in a dev­as­tat­ing bust that oblit­er­ated the notion that the Inter­net had hatched a “new economy”.

It took Google’s IPO in 2004 to prove that an Inter­net com­pany with a dis­rup­tive idea could be prof­itable. In the process, the Inter­net search leader is forc­ing other indus­tries to adapt to a new order where peo­ple have come to expect to be able to find just about any­thing they want by enter­ing a few words into a box on any device with an Inter­net connection.

Facebook’s IPO her­alds a new phase of the Internet’s evo­lu­tion. This social era makes con­nec­tions among peo­ple as impor­tant as Google’s mas­sive index of Web links. Still, the IPO will raise new pres­sures for Face­book to gen­er­ate more rev­enue, per­haps by dig­ging fur­ther into the trove of reveal­ing infor­ma­tion that peo­ple share on the net­work to sell even more tar­geted ads.

The IPO almost cer­tainly will enrich other up-and-coming entre­pre­neurs as Zucker­berg uses the company’s cash and stock to buy other star­tups in an effort to being in other tal­ented engi­neers and promis­ing tech­nol­ogy. That’s what has been doing for years. Since it went pub­lic in 2004, Google has spent $10.2 bil­lion buy­ing nearly 200 other com­pa­nies. Those fig­ures don’t include Google’s still-pending $12.5 bil­lion acqui­si­tion of cell­phone maker Motorola Mobil­ity Hold­ings Inc., which is still await­ing reg­u­la­tory approval in China.

Zuckerberg’s biggest deal so far came when he agreed to buy Insta­gram, a maker of a pop­u­lar mobile app for pho­tos, for $1 bil­lion. Because most of the deal is being paid for in stock, Insta­gram is already get­ting richer. Based on the $38 price for Facebook’s stock, Insta­gram is in line to receive nearly $1.2 billion.

Though Zucker­berg rang the Nas­daq open­ing bell from Cal­i­for­nia, peo­ple out­side the stock mar­ket in Times Square snapped pho­tos of a big blue Face­book sign that lit up the build­ing. Some of them used their smart phones to check in to the Nas­daq on Face­book. Fred­er­ick Nolde, who was vis­it­ing from Rich­mond, Va., said he bought 100 shares through the online bro­ker­age eTrade.

He thinks the com­pany is worth $100 bil­lion. “I think Google is a good com­par­i­son and it’s worth $200 to 300 bil­lion. The real ques­tion is how they do in mobile. If they can fig­ure that out they’ll do well.”

In Menlo Park, some mourned the one that got away. Ven­ture cap­i­tal­ist Mark Siegel vis­ited Facebook’s head­quar­ters to pon­der. Like many of his fel­low tech startup investors with offices a short drive from Face­book on Sil­i­con Valley’s famed Sand Hill Road, Siegel said he had chances to back Face­book early on but didn’t.

He said at the time, when com­pet­ing social net­works like Friend­ster and MySpace still had clout, it wasn’t clear that Face­book would come out on top.

“In hind­sight, any price would have been a good price to pay,” said Siegel, a man­ag­ing direc­tor at Menlo Ventures.

There’s still time. Bruno del Ama, the CEO of asset man­age­ment firm Global X Funds, is wait­ing until Thurs­day, to get in on Facebook.

“On the first day you see a tremen­dous amount of volatil­ity,” he said. In three days, short-sellers will be able to sell the stock, he added, so by day five, investors should see more sta­bil­ity. Global X has a fund focused on social media stocks, and del Ama expects “sig­nif­i­cant growth” in the sec­tor in the com­ing decade. Face­book, right now, is the crown jewel of the space. And it’s likely here to stay, by virtue of its position.

“Once com­pa­nies have built a net­work, it’s really dif­fi­cult to dis­place them,” del Ama said, adding that while mas­sive com­pa­nies such as Google are try­ing to com­pete with Face­book — and may have bet­ter tech­nol­ogy — “we care about where our friends are.”

Posted by AP News on May 18 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.