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Facebook IPO Failure: Who To Blame

By | May 31, 2012

Facebook was launched in February 2004 as a social networking service tapping into college students and their necessity to socially connect and check each other out.  The site was founded by Mark Zuckerberg and his friends/roommates Eduardo Saverin, Dustin Muskovitz and Chris Hughes.   The idea originated from students wanting an easy way to look at each other’s pictures and interests.  Limited at first to Harvard students and other colleges nationwide, the site is now open to anyone globally as long as they register and create a personal profile.  Since launch, the site has skyrocketed into a massive social connection phenomenon and successful digital platform for consumers of all ages to interact with each other, stay connected and “in the know” anytime, anyplace, through any device.  As of May this year, the site has over 900 million active users.

Recently Facebook has decided to go public.  Taking a company public is nothing new except for the fact that this IPO is quite different than the rest.  Ironically, revenue forecasts were downsized by analysts during the road show and leading underwriters (HMM, Morgan Stanley) failed to properly disclose those changes.  Unfortunately, the revised figures were only shared with a small number of funds and private institutions on the matter vs. being disclosed to the masses.  Just days before the IPO, Morgan Stanley also agreed to increase the size and price of the IPO to capitalize on the hype of the deal, despite the knowledge they had on analyst downgrades.

Who should be held accountable?  Mark Zuckerberg, Morgan Stanley and the NASDAQ should all be held accountable for why investors lost their shirts on this opportunity.  As the CEO of the company, Zuckerberg should be held accountable and deserves more than a fair share of the blame.  He has been absent the past month throughout this entire dilemma on Wall Street.  Morgan Stanley is an obvious party that should be held accountable because they withheld pertinent analyst forecast and trading information as well as purposely increased valuation prices just days before the IPO.  NASDAQ needs to be held accountable because it was not adequately prepared to handle the volume of share trading.  On the kick-off day of the IPO, NASDAQ experienced technical difficulties that caused a delay/freeze in trading and greatly affected trader accounts and results.  This technical difficulty resulted in major groups of investors dumping their shares, leading to further plunging of the stock.

Initially kicking off the IPO at a trading price of $38 and as high as $42-$45 a share, Facebook is now currently trading at around $28 a share and can be projected by analysts to drop even further.  This market price is more than 25% below the IPO price.  The most-hyped and talked-about IPO in history has actually been turned into one of the biggest IPO flops and one of the worst in history for investors.

I’ve never seen anything like this IPO.  Typically when a company IPO’s, especially one with the size and hype like Facebook, it skyrockets.  Unfortunately for investors and key stakeholders, we have experienced the exact opposite.  Zuckerberg and his management team need to step in and take immediate action to do whatever it takes to win over consumer confidence and build up shareholder equity.  Morgan Stanley and the NASDAQ should also be held accountable to pay for the damages they caused.

Now, I’m no investing guru or stock-market trading expert but I do know that greed can ruin many good things.  This is a case where greed took over and led to the falling out of Facebook stock and its value. For investors, I hope the company does whatever it needs to do to build future shareholder value and confidence.

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