Facebook IPO: Is The Stock Drop Really Suprising? Really?
Let's cut to the chase and face facts. IPOs are designed to:
“What’s wrong with Facebook’s stock?” The VAR Guy heard that question over and over again this past holiday weekend. The VAR Guy’s answer: Actually, nothing is “wrong” with Facebook (NASDAQ:FB) stock. It’s behaving as The VAR Guy expected and the IPO succeeded in its most basic form. Confused? Here’s the update from The VAR Guy.
Let’s cut to the chase and face facts. IPOs are designed to:
- Let early investors — venture capitalists, etc. — cash out at the highest possible valuation. Here, the IPO succeeded. Facebook essentially went public with a $100 billion-plus valuation. Huge.
- Raise more money for future R&D, corporate expansion, etc. Facebook essentially raised $16 billion. Again, a huge war chest for future investments.
- Give more folks — money managers, individual investors — access to a potential investment opportunity. Just remember, folks: Stocks can go down.
Winners and Losers
So far, so good. But there’s an old saying on Wall Street: “Bulls and bears get rich; pigs get slaughtered.” That definitely held true with the Facebook IPO. Skeptical? Consider this:
- Market bulls — those early venture capitalists who bet so heavily on Facebook were rewarded in a huge way with a maxed out IPO price.
- Market bears — short sellers who believed Facebook’s IPO price was too high and bound to drop are now being rewarded for their short sale foresight. Facebook shares have falling from a high of $45 to a current price of about $29.23 (May 30, 9:45 a.m.)
- Who Got Slaughtered — investors who believed Facebook’s wildly high pre-IPO valuation would climb even higher and remain lofty once the company went public.
Big Concerns, Question Marks
Admittedly, The VAR Guy is turning a blind eye to two major questions:
- First, why did the Nasdaq suffer a technical hiccup during the IPO?
- Did Facebook’s financial advisors give certain investors an unfair advantage, warning some folks of Facebook’s slowing growth and mobile revenue challenges?
Even with those two major issues at hand, let’s look at the situation from the most basic viewpoint of all: Anybody who actually read the Facebook prospectus ahead of the IPO would have seen ample warnings about Facebook’s fight to find growth, especially in the mobile market.
Stocks (A.) rise and (B.) fall. Somehow, during the Facebook IPO craze, quite a few people forgot about item B.