If you saw the movie “The Social Network”, you know how far Facebook has come since 2003. It started off in Mark Zuckerberg’s Harvard dorm as a game called, ‘Facemash’ and then the dramatic name change from: The Facebook- to just Facebook. Oh and you can’t forget the on-going lawsuit between Cameron and Tyler Winklevoss.
Today, Facebook has become a multi-billion dollar social networking industry giant, with over 900 million users– and last week, the company went public.
On the first day of trading, the cost per share rapidly jumped from $43 to $38, with the end price of $38.23 and left with 503.6 million shares- making Facebook the only IPO to see over 500 million shares traded on its first day and the 3rd largest IPO in history.
Almost a few weeks later, the price has gone down even more, to $28 and shareholders have already lost billions in value. And now Zuckerberg is off the top 40 richest list as Facebook shares continue to fall- but why? How did months of hype lead to this?
- Underwriters? Allegations arose Wednesday morning, accusing underwriters of Facebook’s IPO (Morgan Stanley, JPMorgan Chase, Goldman Sachs, Barclays Capital, Merill Lynch) of not sharing important information with all clients before going public. These underwriters, allegedly, cut Facebook’s revenue estimates and shared this information with only certain investors- while at the same time were increasing Facebook’s offering price and the demand.This matter is currently under investigation by regulators, FINRA and The Securities and Exchange Commission.
- Lawsuits? It’s no secret Facebook has gone through a number of lawsuits, most recently, Facebook is settling a privacy lawsuit concerning (unpaid and without consent) publicized user information and images in advertisements on the site. It’s possible this type of lawsuit would keep a potential investor away from purchasing the stock. You have to be smart and think about the possible outcomes of this situation- Will Facebook have to make changes regarding privacy of users… and could that result in less revenue for the company?
- Advertising? Last week, General Motors announced they plan to stop advertising on Facebook. According to GM’s marketing executives, their ads on Facebook have little impact on consumers. Over 80% of Facebook’s revenue comes from advertisers. Will other big companies follow suit? I mean think about it- while scrolling through your newsfeed and looking at pictures of your cousin’s brother’s daughter’s newborn baby- how many of those ads do we actually pay attention to or click?
There are a number of possible reasons why Facebook didn’t reach the success that was predicted. Maybe big investors just see it as a fad, or maybe it just didn’t go public at the right time.