Facebook continues to see fall out from IPO: Part 1

The Facebook IPO was mired in complications. Shareholders are unhappy. And now the Securities and Exchange Commission (SEC) is rethinking its pre-IPO quiet-period rules because of the problems with the Facebook IPO in May 2012. We asked our Zintro experts to share their thoughts on this.

Angela Hey, a technology management and business development expert, says that The losses incurred by investors have nothing to do with SEC regulation or quiet periods. They have everything to do with poor positioning, an over-confident founder, financial market hype and careless buyers. “Every investor needs to do his or her own due-diligence and be aware of the risks. We have lost the ‘caveat emptor’ – buyer beware – caution of previous generations. So part of the belly-aching and dissatisfaction of buyers, who are used to stock prices going up, is because of their exuberance, in part, because Google had a successful IPO,” Hey says.

Hey points out that there were several warning signs:

  • Mark Zuckerberg skipped some of the road show meetings.
  • Zuckerberg’s failure to gain the trust of institutional investors hurt the stock price.
  • If you look over the last 30 years, a realistic price for an IPO is $10-$15 per share. The stock was priced out of line with normal IPO prices.
  • Facebook’s media and investor relations teams also failed to build investor trust. Better management of the negative atmosphere could have mitigated the press fury.
  • The public needed to realize that investing in IPO stocks is risky. Quick flips are a gamble, not a sure way to build profits.

“Facebook has done well financially from the deal, but failed to produce a story that justifies an extraordinarily high valuation,” says Hey. “People remember social networks with limited success – Friendster, Orkut, and MySpace. Facebook needs to differentiate itself from these companies by clever positioning as a fundamentally new platform, rather than a social network. It also needs to promote its advertising network better and tell individuals and small businesses why it is better than Google. It needs to defend the many weaknesses that analysts have seen in its business model.”

Zeeshan Sheikh, a marketing professional, says that the hidden facts about Facebook’s IPO are finally getting crisp and clear. Recently, a New York Times columnist, Andrew Ross Sorkin, wrote an article stating his concerns on claims that Facebook’s CFO pushed the management on launching the shares at a higher price and lobbied for high prices and a 25% higher volume of shares then originally planned, resulting in the downfall of share price.

Sheikh points out that it’s the job of the big financial advisors and consultant, who were responsible for the huge investments made in Facebook, to make sure that the placement of investments is appropriate. “If there was a chance of a downfall of stock they should have known the potential of the stock in near future rather than putting blame on Facebook,” he says.

Facebook is trying to come up with solutions and ideas to raise its stock price, notes Sheikh, especially since its stock has dropped $50 billion in a short amount of time. “I see a true potential and future for Facebook stock if the management plays it right, not relying so much on projections and forecasting, but on reality while giving users more control over content shown to contacts and the general public to increase the use and reach in other markets,” he says. “Investors must know that IPOs are a huge risk and all the blame shouldn’t be on Facebook’s CFO and management, but investors have to take ownership for their decisions.”

By Maureen Aylward

Zintro, Inc

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