Facebook Initial Public Offering Issue

According to Reuters (22 May 2012) , two top U.S financial regulators mentioned that the issues of initial public offering (IPO) of Facebook should be reviewed. 

Facebook shared a nearly flat close on Friday’s (18^th May 2012) and a sharp drop in 11% on Monday (21th May 2012). Then, the stock fell into 8.9% lower at $31 on volume of 101 million shares on the next day. The company had shed more than $19 billion in market capitalization compared with its $38-per-share offering price one week before.

According to CNN Money Tech (23 May 2012) , there were more than 40 lawsuits in different state and federal courts had been proposed in the weeks since Facebook went public on 18 May 2012. A “technical error” on the Nasdaq exchange caused delays and errors in Facebook trades. Therefore, this process fell into an unexpected loop because a lot of investors submitted changes to their orders before the opening trade began. Besides, this situation affected some brokers as they couldn't confirm the price of their orders or was the orders had closed until the late Tuesday. 

In addition, some people alleged that Facebook disclosed certain financial message to big bank’s analysts in advance and not average to investors.  Therefore, brokers who over-ordered shares in the anticipation that supply would be limited had constantly complained that they need to handle many stock and did not have any awareness about the alteration of forecast. According to one of the advisers of Morgan Stanley Smith Barney, it is a serious problem for the whole industry because the institutional investors received the message but the retail investors did not.  

In my opinion, the “selective disclosure” of the estimate cut is extremely unfair to those investors who purchased Facebook’s stock on the IPO and didn't aware of anything about the stock market. Meanwhile, this issue might have a violation of securities laws at the worst situation. Furthermore, this problem will affect the reputation and credibility of Facebook as well. Also, it will influence the price of Facebook’s stock in the stock market. Besides, it was normally regarded as significantly negative news for the stocks when analysts cut the estimates.

In addition, Reuters (Mar 25) mentioned that Nasdaq planned to give retail market makers lower than the $500 million in estimated losses from Facebook’s IPO. However, the written decision of U.S. Securities and Exchange Commission (SEC) claimed that the compensation plan could affect pending litigation against Nasdaq. Moreover, the SEC investigates the role of Nasdaq in the botched IPO. According to a source, both sides were in talks to possibly solve the problem. Also, Tamar Frankel, a Boston University professor said that if Nasdaq had to compensate the entire brokers who lost money in the Facebook IPO, then it might bankrupt the exchange. Besides, it may end up by driving more trading into less transparent venues.

Additionally, Facebook’s stock was remained at low range after its IPO and this caused a lot of investors felt disappointed with it. However, Facebook’s finally stock hit $45 on 11 September 2013. It was the highest record since 2012 IPO (Reuters, 12 September 2013). Before that, some investors doubt about the profitability of Facebook in the future. In this case, Facebook have to find new profit growth points, from search engines to mobile advertising and then mobile games services. Therefore, Facebook’s latest earning is better than expected, especially their strength in the mobile advertising. “Facebook's mobile ads accounted for 41 percent of its $1.62 billion in ad sales during the second quarter where the company reported $1.81 billion in total revenue, beating Wall Street expectations on Wednesday” (ADWEEK 24 July,2013). Last but not least, this situation will help to stimulate Facebook’s share in the future.