Facebook

IPO
Akhil
Uchil

Facebook IPO

Facebook is a place where people spend most of their time as compared to any other internet
property

Facebook an online social networking site, founded on February 4 , 2004 by Mark Zuckerberg with
his
college roommates and fellow Harvard University students

Facebook held its initial public offering on 18 May 2012

Facebook issued 421 million shares at a price of $38. This price

valued the company at $104 billion

With 845 million active users and 2.7 billion daily likes and
comments in just 8 years Facebook IPO undoubtedly became one
of the biggest in technology and in internet history.

Why did
go
public?

According to the rule set by Securities and

exchange commission (SEC), from 1964 any
private company with more than "500 shareholders
of record" must adhere to the same financial
disclosure requirements that public companies do

That means filing detailed quarterly and yearly financial

reports, and dealing with all the scrutiny that comes with
a powerful company opening its books

Facebook growing big was crossing the shareholders

requirements as per SEC i.e. 500 and this became the key reason
for the Facebook to go public

Stock Price Graph

Facebook had issued its shares at $ 38 per share. But do you really think the stock traded at $38 per
share?
Facebook IPO was launched at stock price $ 38 but it did not trade at $38 till August 2013

Looking at the graph you can see that from May 2012 till August 2013 stock price was trading below

What went
wrong
with
IPO ?

Bad
Facebook generates money in 2 ways
Valuation
Advertising

3
,

Others

Facebook generates around 80% of the yearly

revenue by giving ads on its site. Remaining 20% of
the revenue is generated from other sources. i.e.
companies who owns the game pay ,Facebook for
their games to be shown on their site

In other words, Dozens of other websites have discovered, customers respond poorly to
online advertising, and prefer to shop via sites they find on their own

Bad
Valuation
Due to this many advertising company may withdraw their money from
the Facebook site

General Motors announced to withdraw $ 10 million advertising buy

from the site just before the IPO

The fact is that Facebook has not yet been able to find an ad model
which generates revenue proportionate to its revenue

Facebook had sets its price at $28 $35 per share. But just before the
IPO is launched the company raised
the price to $38 per share

After the negative disclosures and insider trading it became very clear
that the facebook shares were not
perfectly priced

3
4

Bad Execution

Inspite the shares being over valued Facebook

had increased the number of shares by 25%

When the quick profit failed to materialize a couple

of the days after the IPO, The investors who received

more shares than they wanted effectively became

The timing of the key activities makes you wonder what signal the company was sending out
forced sellers
For example, the analyst handling IPO had cut the forecasts of the firm after the IPO filing update

At the same time Facebook leaders and their Investment Banking colleagues were pushing for sale at

the top end of their price range

Bad Timing and lawsuits

faced
Facebook had faced a number of lawsuits following its IPO. Just
prior to IPO , Morgan Stanley as well as many other analysts
lowered the Facebooks earnings expectations which were not
disclosed in Facebooks S 1 filing

Many users had started using Facebook app in the mobile.

Facebook is finding it difficult to shift its ad sales to mobile

platforms , a place the company admitted it does not currently
generate any meaningful revenue

Facebook had repeatedly warned in the IPO filing about the

challenges they were facing in the
mobile advertising

Bad Timing and lawsuits

faced
Due to this challenges of mobile advertising just before the IPO,
Facebook had realized that its revenue would be lower than
previously estimated in its IPO statements

This was communicated verbally to the large investors , but small

investors were kept in the dark

Due to this large investors made huge profits by betting against the
company or many others avoided major losses by backing out of the
IPO just in time, while small investors were left with overpriced shares

Since, 57% of the shares sold in the IPO came from Facebook insiders,
investors had lacked confidence in
the stock

3
4

Technical Glitches

On the day of the trading, the stock opening was delayed

due to technical glitches, as NASDAQs electronic trading
platform was unable to handle the high volume of trades

Due to this some investors failed to sell their stock during

the first day of trading while the stock price was falling

forcing
them
to incur
losses
when
their trades
finally
Due to all this reasons Facebook was not
trading
at the
pricebigger
on which
it had
launched
i.e. $38
per
went through
share

Stock Price Graph

Only from 2nd August 2013

Facebook had started trading at
a price of $38.05

From 2nd august 2013 till 22nd

August 2013 Facebook was
trading in the range from $38.05
$38.55

After 22nd August 2013 the

stock price of Facebook had
started increasing.