Initial public offering of Facebook
The technology company Facebook, Inc.,[a] held its initial public offering (IPO) on Friday, May 18, 2012.[1] The IPO was one of the biggest in technology and Internet history, with a peak market capitalization of over $104 billion.
Preparation[edit]
Filing and roadshow[edit]
Facebook filed for an initial public offering on February 1, 2012 by filing their S1 document with the Securities and Exchange Commission (SEC).[10] The preliminary prospectus announced that the company had 845 million active monthly users and that its website featured 2.7 billion daily likes and comments.[11] The filing noted that the company's increases in membership, as well as its incomes, were slowing and that the deceleration was likely to continue.[12]
To ensure that early investors would retain control of the company, Facebook in 2009 instituted a dual-class stock structure.[9] After the IPO, Zuckerberg was to retain a 22% ownership share in Facebook and was to own 57% of the voting shares.[13] The document also stated that the company was seeking to raise US$5 billion, which would make it one of the largest IPOs in tech history and the biggest in Internet history.[14]
The roadshow faced a "rough start" initially.[15][16] Zuckerberg raised controversy for wearing a hoodie (rather than a customary business suit) to the first meeting with investors.[17] Wedbush Securities analyst Michael Pachter called it a "mark of immaturity."[17] A half-hour-long video played during that meeting also frustrated investors who wanted to discuss more technical details,[16] and was dropped for future meetings.[18]
Aftermath[edit]
Financial[edit]
The IPO had immediate impacts on the stock market. Other technology companies took hits, while the exchanges as a whole saw dampened prices. Investment firms faced considerable losses due to technical glitches. Bloomberg estimated that retail investors may have lost approximately $630 million on Facebook stock since its debut.[51] UBS alone may have lost as much as $350 million.[52] The Nasdaq stock exchange offered $40 million to investment firms plagued by offering-day computer glitches.[32] While considerably higher than the usual $3 million limit on reimbursements, it was unlikely to make up for large investor losses.[32] Additionally, the rival New York Stock Exchange lampooned the move as a "harmful precedent" and an unnecessary subsidy in the wake of Nasdaq's missteps.[32] Nasdaq claimed to fix the problems that beset the offering, and hired IBM for a technical review.[32]
The IPO impacted both Facebook investors and the company itself. It was said to provide healthy rewards for venture capitalists who finally saw the fruits of their labor.[12] In contrast, it was said to negatively affect individual investors such as Facebook employees, who saw once-valuable shares become less lucrative.[12] More generally, the disappointing IPO was said to lower interest in the stock by investors.[12] That would make it more difficult for the company to accumulate cash reserves for large future expenditures such as acquisitions.[12] CBS News said "the Facebook brand takes a pretty big hit for this," mostly because of the public interest that had surrounded the offering.[44]
Some suggested implications for companies other than Facebook specifically. The IPO could jeopardize profits for underwriters who face investors skeptical of the technology industry.[12] In the long-run, the troubled process "makes it harder for the next social-media company that wants to go public."[12] While the Wall Street Journal called for a broad perspective on the issue, they agreed that valuations and funding for future startup IPOs could take a hit.[53] Online travel company Kayak.com delayed its IPO roadshow in the wake of Facebook's troubles.[44] Analyst Trip Chowdhry suggested an even broader conclusion with regards to IPOs, arguing "that hype doesn't sell anymore, short of fundamentals."[12] CBS News compared the situation to the dot-com bubble, warning that "You'd think we all would have learned our lesson" from that period of overvaluation.[44]
While expected to provide significant benefits to Nasdaq, the IPO resulted in a strained relationship between Facebook and the exchange.[54] Facebook has considered moving its listing to a competing exchange.[54]