It is almost two weeks since Facebook held its IPO. Its share price has been in turmoil over the last 10 days. What went wrong with the IPO? This timeline of events tries to put things into some sort of order from initial excitement to burst bubble.
Credit: Christine Westerback
November 28th 2011: News broke that Facebook was in discussions with the Securities and Exchange Commission about an IPO. Speculation began about how much it would manage to raise after flotation.
Initial reports placed Facebook's value at $100 billion after IPO and that it would raise about $10 billion for the company. The size of these figures for a company that essentially deals in electronic relationships started the hype.
Zuckerberg gave interviews on US and foreign TV channels to talk about how well the business was doing, and to try and convince new investors to consider coming on board. Over 1,000 staff at Facebook were expected to become millionaires. They planned to retire, travel to space or go on to build their own start-ups.
"I actually believe that to the extent that there’s any bubble in technology at all it’s really a bubble around Facebook in the sense that there’s a huge amount of pent up demand amongst retail investors for access to Facebook equity"
February 1st 2012: Facebook filed its IPO and speculation began about how much Facebook was actually worth. Initial guesses were that the social network was worth $82 billion. The IPO valued the company at $5 billion.
We had 488 million MAUs who used Facebook mobile products in March 2012.
While most of our mobile users also access Facebook through personal computers, we anticipate that the rate of growth in mobile usage will exceed the growth in usage through personal computers for the foreseeable future, in part due to our focus on developing mobile products to encourage mobile usage of Facebook.
We have historically not shown ads to users accessing Facebook through mobile apps or our mobile website. In March 2012, we began to include sponsored stories in users’ mobile News Feeds.
However, we do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven.
We believe this increased usage of Facebook on mobile devices has contributed to the recent trend of our daily active users (DAUs) increasing more rapidly than the increase in the number of ads delivered.
If users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected.
17th May 2012: It was reported that Mark Zuckerberg would exercise options to buy 120 million shares at 6 cents per share, then claim tax breaks on the difference. At IPO, the shares were offered for $38 per share which equated to a $3 billion tax break.
Each of these factors could contribute to the company underperforming. With Zuckerberg still in charge as CEO controlling majority of the stock, doubts started to surface about the amount of control he would still have after flotation. Would you be an idiot to buy shares in Facebook?
May 18th 2012-- IPO Day: The company's 33 underwriters worked to prop up the shares by buying massive blocks of stock even though the actual IPO had the highest volume of any IPO in history with 460 million shares traded.
25th May 2012: The initial IPO price was set by Wall Street bankers and clients. Retail investors stayed away. Investors and insiders already had shares – others stayed away as they disagreed with the valuation. Did the 'smart money' get burnt?
When the Facebook circus actually came to town did it live up to the pre-IPO hype and hysteria? The technical glitch at NASDAQ lost UBS and Citi approximately $50 million after trading was delayed by 30 minutes. Was this technology failure, at a critical point for Facebook an omen about its future financial situation?
Perhaps smaller investors squeezed by the current economic conditions acted with caution and stayed away from the latest 'get rich quick' Internet scheme.
When an offer seems too good to be true -- it usually is.