Facebook IPO Case Study: Lessons from the Initial Public Offering

Facebook's initial public offering (IPO) was a historic moment in the tech world, but it was also a cautionary tale for companies looking to go public. The IPO was filed on February 1, 2012, with a proposed offering price of $38 per share.

The IPO was oversubscribed, with demand exceeding supply by a factor of 22. This led to a frenzy of activity on the trading floor, with investors eagerly anticipating the IPO's debut. Facebook's market capitalization was estimated to be around $104 billion at the time of the IPO.

The IPO raised $16 billion for Facebook, making it one of the largest IPOs in history. However, the IPO was also marked by a series of missteps, including a botched rollout of the IPO on the trading floor.

Facebook filed for an initial public offering on February 1, 2012 by filing their S1 document with the Securities and Exchange Commission (SEC). This marked a significant milestone in the company's history.

The preliminary prospectus announced that Facebook had 845 million active monthly users and featured 2.7 billion daily likes and comments. The company's rapid growth was slowing down, and this deceleration was likely to continue.

Facebook instituted a dual-class stock structure in 2009 to ensure early investors retained control of the company. This structure would allow Zuckerberg to retain a 22% ownership share and 57% of the voting shares.

The company was seeking to raise US$5 billion, which would make it one of the largest IPOs in tech history and the biggest in Internet history.

The Facebook IPO was a significant event that had far-reaching implications for the company, its investors, and the broader financial industry. The IPO had immediate impacts on the stock market, with other technology companies taking hits and the exchanges as a whole seeing dampened prices.

Investment firms faced considerable losses due to technical glitches, with Bloomberg estimating that retail investors may have lost approximately $630 million on Facebook stock since its debut. UBS alone may have lost as much as $350 million.

The IPO resulted in a strained relationship between Facebook and the Nasdaq exchange, with Facebook considering moving its listing to a competing exchange. The Nasdaq exchange offered $40 million to investment firms plagued by offering-day computer glitches, which was unlikely to make up for large investor losses.

More than 40 lawsuits were filed regarding the Facebook IPO in the month that followed, with some alleging that an underwriter for Morgan Stanley selectively revealed adjusted earnings estimates to preferred clients. Morgan Stanley settled allegations of improperly influencing research analysts for $5 million in December 2012.

The Facebook IPO had a significant impact on the stock market, with other technology companies taking hits due to its poor performance. The exchanges as a whole saw dampened prices.

Investment firms faced considerable losses due to technical glitches, with UBS alone potentially losing as much as $350 million. Bloomberg estimated that retail investors may have lost approximately $630 million on Facebook stock since its debut.

The Nasdaq stock exchange offered $40 million to investment firms plagued by offering-day computer glitches. This was a considerable increase from the usual $3 million limit on reimbursements, but unlikely to make up for large investor losses.

The IPO also negatively affected individual investors, such as Facebook employees, who saw once-valuable shares become less lucrative. This led to a lower interest in the stock by investors, making it more difficult for the company to accumulate cash reserves for large future expenditures.

The Facebook IPO resulted in a strained relationship between Facebook and the Nasdaq exchange, with Facebook considering moving its listing to a competing exchange.

More than 40 lawsuits were filed regarding the Facebook IPO in the month that followed.

The lead underwriters, Morgan Stanley, JP Morgan, and Goldman Sachs, all cut their earnings forecasts for Facebook in the middle of the IPO roadshow.

Some lawsuits alleged that an underwriter for Morgan Stanley selectively revealed adjusted earnings estimates to preferred clients.

A class-action lawsuit is being prepared due to the trading glitches, which led to botched orders and prevented some investors from selling their shares during the first day of trading.

The glitches forced some investors to incur bigger losses when their trades finally went through.

Facebook asked for all the lawsuits to be consolidated into one in June 2012, citing overlap in their content.

Morgan Stanley settled allegations of improperly influencing research analysts for $5 million in December 2012.

Securities and Exchange Commission Chairman Mary Schapiro and Financial Industry Regulatory Authority Chairman Rick Ketchum called for a review of the circumstances surrounding the troubled IPO.

Regulators began to investigate whether banks underwriting Facebook had improperly shared information only with select clients, rather than the general public.

The allegations sparked "fury" among some investors and led to the immediate filing of several lawsuits, one of them a class action suit claiming more than $2.5 billion in losses due to the IPO.

On the night before the IPO, Facebook celebrated with an all-night "hackathon", and CEO Mark Zuckerberg rang a bell from Hacker Square to announce the offering.

The stock's performance was quite different from the hype surrounding it. In the first day of trading, the stock closed at $38.23, only a 0.6% increase from the offering price of $38.00. However, the next day, the stock plummeted to $34.03, a 10% drop from the previous day's close.

Here's a brief summary of the stock's performance in the first few days of trading:

The stock continued to decline, with Facebook's share price falling below its offering price on May 21 and reaching a low of $27.72 on June 1. This led the Wall Street Journal to call the IPO a "fiasco."

Price targets were set by several investors before Facebook's IPO. Arvind Bhatia of Sterne Agee predicted a price of $46, which some thought was too low.

Analysts were divided on how Facebook's stock would perform on its first day of trading. Jim Krapfel of Morningstar suggested a 50% or better increase would be seen positively, while Lee Simmons of Dun & Bradstreet predicted more modest gains of 10 to 20%.

Most analysts thought Facebook's valuation was too high, citing a price-to-earnings ratio of 108 for 2011. Critics argued the company would need to experience "almost ridiculous financial growth" to justify this valuation.

Some investors were eager to sell their shares of Facebook before the IPO. Accel Partners planned to offload as many as 28% of their shares, while Goldman Sachs was ready to sell up to 50% of theirs.

Public trading was a cultural phenomenon as much as it was a business story. The interest in Facebook's public offering was immense, with many people eagerly following the event.

Facebook itself celebrated the occasion with an all-night "hackathon" on the night before the IPO. This unique way of celebrating marked a memorable moment for the company.

The IPO was announced with a traditional ring of a bell, a custom for CEOs on the day their companies go public. Facebook's CEO, Zuckerberg, rang a bell from Hacker Square on the Facebook campus in Menlo Park, California.

The initial days of Facebook's public trading were a wild ride. The stock price fell during nine of the next thirteen trading days, with only four days of gains.

The stock closed below its offering price on the very next day, May 21, at $34.03. This was a significant drop, down 11% from the previous day's close.

The following day, May 22, the stock saw another large loss, closing at $31.00, a drop of 8.9% from the previous day. This was a concerning trend for investors.

Facebook's share value continued to decline, with the stock closing at $28.84 on May 29, a drop of 9.6% from the previous day. By the end of May, the stock had lost over a quarter of its starting value.

Here's a summary of the significant price moves during the first few weeks of Facebook's public trading:

The stock continued to struggle, with investors losing $40 billion by June 6. It wasn't until August 20 that the stock price began to recover, closing at $20.01.

Facebook's Initial Public Offering (IPO) was a highly anticipated event, with many investors setting price targets for the company. Arvind Bhatia of Sterne Agee predicted a price of $46 before the IPO, while others, including Jim Krapfel of Morningstar, suggested a 50% or better increase on the first day would be seen positively.

The IPO took place on May 18, 2012, with an offering price of $38 per share. The stock closed at $38.23 on its first day of trading, a 0.6% increase from the offering price. Facebook's market capitalization was around $90 billion at the time.

Several analysts predicted significant gains on the first day of trading, with some expecting the stock to reach $60 or higher. However, the stock's price fell to $34.03 on May 21, and then to $31.00 on May 22.

The stock's performance was closely watched, with many investors losing money in the days following the IPO. By June 1, the stock had closed at $27.72, a 27% decrease from the offering price. This led the Wall Street Journal to call the IPO a "fiasco."

Here is a table summarizing the stock's price movements in the days following the IPO:

The stock's price continued to fluctuate in the months following the IPO, eventually bottoming out below $18 in September 2012. It wasn't until August 2013, 16 months after the IPO, that the stock's price finally returned to the initial $38 mark.