Facebook’s initial public offering (IPO) was a resounding failure, and has continued to trend poorly post-IPO. When the stock first went on sale on Friday, May 18, it was offered at $38 a share. After weeks of continued decline, the price closed at $26.90 on June 5. Investors did not wait long to vent their frustration with Facebook founder Mark Zuckerberg and investment bank Morgan Stanley over their setting of what has come to be seen as over-inflated initial prices; as early as the first weekend threats of lawsuits were occurring.
What Happened to the IPO?
How could things have gone in such a negative direction? Some of the blame is placed on the hype surrounding this IPO. Facebook’s massive popularity and cultural influence made a certain amount of hype unavoidable, however—after all, 900 million people worldwide are use Facebook, and its popularity shows no sign of slowing down. The question at this point becomes, “What does Facebook’s future look like?” If the earnings for Facebook were projected to be higher in future years than is actually possible, this would mean that the $38 initial price was overambitious. Investors are now beginning to assert that this is exactly the case, claiming that Morgan Stanley shared the truth about Facebook’s earnings with their larger institutional investors but did not do so with their smaller investors.
Possible Insider Trading
What is making things worse for Facebook is the fact that Morgan Stanley and others have adjusted the expected earnings for Facebook to be lower, a very unusual and infrequently used move. The accusation is that Morgan Stanley was aware of the fact that analysts at Facebook discovered that their original earnings expectations for the second quarter were higher than what was warranted, but that this information was kept from the general public. If it is true that the underwriters at Morgan Stanley shared information with some of their clients and not others, those who are filing lawsuits may be able to make a case for insider trading.
A Continuing Slide
With the potential of lawsuits and new revelations coming to the surface, Facebook’s stock appears to be destined to continue its downward trajectory. Another bad sign is that large investors in the IPO are selling their shares, indicative of a lack of confidence in the company at the highest levels. This one fact encouraged a lot of other people to do the same, pushing the stock price lower. Even more unsettling is the fact that the rest of the stock market rallied on the day of Facebook’s IPO.
The Future of Facebook
Even though the situation looks grim, there is potential for turnaround. Facebook is still the preferred social networking website for companies large and small, which bodes well for its future. Research by comScore has shown that people spend an inordinately larger amount of time on Facebook than any other social networking website: on average, Facebook uses stay logged into their accounts for a total of 409 minutes. With such a large presence in the average household, Facebook likely has the staying power to ride out the choppy post-IPO seas.
Author Information
This article was written by Karl Stockton for the team at http://www.pc-wholesale.com/. Visit them in the future to learn more about their Transceivers.
