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Will Facebook IPO Failure Spawn Competitors?

Postmillennialism —  Leave a comment

World — The largest initial public offering (IPO) in Nasdaq’s history on May 18 ended up being considerably less than expected. Technical glitches delayed the start of trading on Facebook shares for nearly two hours. That delay shook investor confidence and share prices immediately started to fall from its IPO “strike price” of $38 per share.

That forced the chief underwriter, Morgan Stanley, to buy shares of the stock on the open market in order to prop up the price. But investors interpreted that move, too, as a sign of desperation. At the end of the first day of trading, a Friday, the stock still hovered at the IPO price. On the following Monday, Facebook promptly lost more than 10 percent of its value. Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, N.J., summed it up: “It was just a poorly done deal. They pooched it, that’s the bottom line here.”

One reason for Facebook’s shakiness was poor press in the week prior to the IPO. The business press was full of stories asking whether Facebook profiles will now start getting pounded with ads because Facebook has to meet quarterly revenue numbers. Will this huge IPO spawn competitors who will change the game further? Will Facebook then lose the unique relationship it has with its users?

That’s entirely possible. Kerry Tracy, CEO of the Working Media Group, said Facebook is both the cause of and could become the victim of rapid changes in the media environment. “We’re going to see more changes in consumer media consumption in the next three to five years than we’ve seen in the past 25 years,” he said. That’s why the question that seems to be nagging the market is this: Was May 18 Facebook’s high-water mark, or were the problems just speedbumps on the road to Google-sized valuation?

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