Facebook vs. Nasdaq: The IPO debacle and its impact on Facebook's success
After years of resistance, social media network Facebook made the long anticipated leap into the public eye with its initial public offering (IPO) on May 18, 2012 on the Nasdaq Stock Market. With an IPO price of $38, Facebook was the largest company to go public in the U.S. The IPO was a direct result of Facebook's tremendous growth since its creation in 2004. From 2007 to 2011, Facebook revenue increased from $153 million to $3.7 billion, and this past October, the site hit a major milestone, its one-billion-users mark. Facebook seemed destined for a successful IPO; however, almost immediately the IPO was plagued by a series of problems. During the first few trading hours of the IPO, severe technical issues on the exchange resulted in major trading glitches that caused countless problems for investors and financial firms. The debacle caused a great deal of tension between Facebook and Nasdaq, as well as a significant amount of criticism from outside market makers. Currently, both Facebook and Nasdaq are facing numerous lawsuits for the losses that incurred. The overriding question in the IPO debacle is which entity is at fault and if the botched IPO will ultimately influence the success of Facebook.
Although Facebook was not at fault for the technical issues that erupted during the IPO, many feel Facebook was partially to blame by being overly aggressive in the size and price of the public offering. Originally, Facebook had planned to enter the market with shares priced between $28 and $35. However, the IPO was eventually priced at $38 each, making Facebook the most valuable U.S. Company at the time of its stock market debut. Within the Facebook entity, Chief Financial Officer David Ebersman received much of the blame for the botched IPO. Ebersman was the main force within Facebook pushing the offering price higher and lobbying to sell 25 percent more shares than originally planned because he was convinced there was enough market demand to absorb the additional volume. Although Ebersman has not been accused of any type of illegality, many have criticized him for being catastrophically wrong in his assessment of the market demand and the appropriate price for the shares.
Nasdaq has received the majority of the blame for Facebook's botched IPO as a direct result of the technical problems that erupted throughout the morning. Within only the first few hours of trading, technical issues resulted in significant problems that thwarted the success of the IPO. Investors were kept from buying shares in the morning or selling them later that day, while other investors were unsure if their orders went through and some were left holding shares they didn't want. Investors and financial firms claim losses of more than $500 million on Facebook shares they didn't want, couldn't sell, or agreed to take back from angry customers. Facebook was disconcerted with Nasdaq's lack of communication. Important Facebook executives, specifically Ebersman, were left out of important decisions, such as whether the stock should begin trading at all given the impact of early issues. Moreover, Facebook executives believe Nasdaq added to the woes the next week. Before the second trading day, Nasdaq alerted traders to file claims by noon if they wanted financial accommodations for the IPO. Facebook executives believe the notice encouraged investors to dump shares to prove a loss on Facebook, prompting the stock to fall more than $4 in the first hour of trading that day.
As of today, Facebook executives have decided to keep the company's shares listed on the Nasdaq Stock Market rather than switching to the New York Stock Exchange largely because of fears that a move would further drain confidence in the company's shares. Nasdaq executives have been actively working to repair the relationship damaged by Facebook's rocky debut, including plans to pay $40 million to brokers who racked up losses on Facebook orders Nasdaq failed to confirm. Still, many of Wall Street's biggest market makers are criticizing Nasdaq's handling of the offering and the limits of its compensation plan. However, Facebook itself has declined to go public with complaints.
In just a few months, Facebook and Nasdaq have faced countless battles. The legal issues with investors and brokers are just beginning, but the dispute between Facebook and Nasdaq seems to be settled for now. Yet, Facebook and Nasdaq both face a larger dilemma in regards to the steady decline of the value of Facebook stock. Since the IPO debacle, Facebook stock has fallen by 50 percent with the company losing more than $50 billion in market value. Shares of Facebook currently trade at around $23.00, which is well below the offering price of $38. Investors are concerned about its ability to keep increasing revenue.
Another situation that poses a risk for Facebook is the lockups that will occur over the next couple of months. Facebook's lockups give early employees and investors a chance to sell about 773 million shares of Facebook stock, as well as another 31 million restricted stock units owned by employees who joined the company prior to 2011. The first lockup came in August when early investors were able to sell more than 270 million shares. Facebook stock immediately dropped six percent after the first lockup. The lockups are an opportunity for disgruntled investors who had a negative experience during the IPO to dump their shares early, which could be very detrimental for Facebook.
It is difficult to determine if the Facebook stock would have been more successful if the botched IPO hadn't occurred. Overall, both Nasdaq and Facebook played a part in the failures of the IPO. Although the accusations surrounding each entity are different, both are guilty of not accurately assessing the short and long terms effects of their decisions. Moving forward, Facebook will have to be much more cautious in any decisions regarding finances.
Although Facebook was not at fault for the technical issues that erupted during the IPO, many feel Facebook was partially to blame by being overly aggressive in the size and price of the public offering. Originally, Facebook had planned to enter the market with shares priced between $28 and $35. However, the IPO was eventually priced at $38 each, making Facebook the most valuable U.S. Company at the time of its stock market debut. Within the Facebook entity, Chief Financial Officer David Ebersman received much of the blame for the botched IPO. Ebersman was the main force within Facebook pushing the offering price higher and lobbying to sell 25 percent more shares than originally planned because he was convinced there was enough market demand to absorb the additional volume. Although Ebersman has not been accused of any type of illegality, many have criticized him for being catastrophically wrong in his assessment of the market demand and the appropriate price for the shares.
Nasdaq has received the majority of the blame for Facebook's botched IPO as a direct result of the technical problems that erupted throughout the morning. Within only the first few hours of trading, technical issues resulted in significant problems that thwarted the success of the IPO. Investors were kept from buying shares in the morning or selling them later that day, while other investors were unsure if their orders went through and some were left holding shares they didn't want. Investors and financial firms claim losses of more than $500 million on Facebook shares they didn't want, couldn't sell, or agreed to take back from angry customers. Facebook was disconcerted with Nasdaq's lack of communication. Important Facebook executives, specifically Ebersman, were left out of important decisions, such as whether the stock should begin trading at all given the impact of early issues. Moreover, Facebook executives believe Nasdaq added to the woes the next week. Before the second trading day, Nasdaq alerted traders to file claims by noon if they wanted financial accommodations for the IPO. Facebook executives believe the notice encouraged investors to dump shares to prove a loss on Facebook, prompting the stock to fall more than $4 in the first hour of trading that day.
As of today, Facebook executives have decided to keep the company's shares listed on the Nasdaq Stock Market rather than switching to the New York Stock Exchange largely because of fears that a move would further drain confidence in the company's shares. Nasdaq executives have been actively working to repair the relationship damaged by Facebook's rocky debut, including plans to pay $40 million to brokers who racked up losses on Facebook orders Nasdaq failed to confirm. Still, many of Wall Street's biggest market makers are criticizing Nasdaq's handling of the offering and the limits of its compensation plan. However, Facebook itself has declined to go public with complaints.
In just a few months, Facebook and Nasdaq have faced countless battles. The legal issues with investors and brokers are just beginning, but the dispute between Facebook and Nasdaq seems to be settled for now. Yet, Facebook and Nasdaq both face a larger dilemma in regards to the steady decline of the value of Facebook stock. Since the IPO debacle, Facebook stock has fallen by 50 percent with the company losing more than $50 billion in market value. Shares of Facebook currently trade at around $23.00, which is well below the offering price of $38. Investors are concerned about its ability to keep increasing revenue.
Another situation that poses a risk for Facebook is the lockups that will occur over the next couple of months. Facebook's lockups give early employees and investors a chance to sell about 773 million shares of Facebook stock, as well as another 31 million restricted stock units owned by employees who joined the company prior to 2011. The first lockup came in August when early investors were able to sell more than 270 million shares. Facebook stock immediately dropped six percent after the first lockup. The lockups are an opportunity for disgruntled investors who had a negative experience during the IPO to dump their shares early, which could be very detrimental for Facebook.
It is difficult to determine if the Facebook stock would have been more successful if the botched IPO hadn't occurred. Overall, both Nasdaq and Facebook played a part in the failures of the IPO. Although the accusations surrounding each entity are different, both are guilty of not accurately assessing the short and long terms effects of their decisions. Moving forward, Facebook will have to be much more cautious in any decisions regarding finances.
