It’s been a month since Facebook’s IPO fell flat and in that time, the market for initial public offerings has collapsed.
No company has gone public since May 18, compared with 19 in the same period a year ago. Fourteen offerings have been withdrawn or delayed, according to Dealogic.
Of course, thanks to the European debt crisis, financial markets haven’t been terribly conducive to IPOs. Still, venture capitalists say the fallout from Facebook’s rocky IPO is making companies -especially those in the technology sector- cautious about going public.
“It pretty much wiped the counter clean for the time being,” says Francis Gaskins, president of researcher IPOdesktop.
“It sucked the air out of the room.”
The internet industry that captivated the investment world in the late 1990s and went bust as the next decade began had pinned its hopes on Facebook’s stock market debut to signify the beginning of a new era.
In Silicon Valley, the IPO had been billed as “the big one”, an earth-shaking event that would unleash a wave of investment in technology startups.
Instead, from the first-day-pop-that-wasn’t to the investor lawsuits and falling share prices that followed, Facebook’s $US16 billion initial public offering has resulted in nothing but trepidation among tech entrepreneurs and those who supply their early funding.
“There were a lot of venture capitalists and entrepreneurs that really have been waiting for Facebook to go public,” says Sam Hamadeh, the CEO of PrivCo, a research firm that follows privately held companies.
“Everybody’s been told just wait ’til May 18, Facebook is going to pop, everybody will get very excited about it … and then you have the opportunity to go public this summer with that halo effect.”
That bright, glowing aura never materialised.
After pricing at $US38 the night before its market debut, Facebook’s stock shot as high as $US45 before settling at $US38.23 at the end of its first trading day. Since then, the stock dropped as low as $US25.52. On Thursday, it was trading at $US32.05 down 16 per cent from its IPO price.
Facebook has joined the ranks of other recently-public internet companies that are trading below their IPO prices.
There’s Zynga Inc, whose games are played mainly on Facebook and Pandora Media Inc, the online radio service.
Groupon Inc, which offers online deals to subscribers, went public on November 4 at $US20 and is now trading around $US10.
And Friday, May 18, will be remembered as the day Facebook’s much-ballyhooed IPO landed flat on its belly, marred by technical glitches at the Nasdaq Stock Market that delayed the stock’s trading by half an hour.
There’s now agreement among investors that Facebook may not be worth as much as Amazon苏州半永久会所,, or half as much as Google – not yet at least. The California company’s stock is down 17 per cent since its first day of trading.
Even Morgan Stanley, the highly-regarded underwriting bank that ushered the likes of Apple, Netscape and Google into the public markets, has come under fire for its handling of Facebook’s IPO.
Critics accuse the bank of offering too many shares at too high a price. They also claim it gave special treatment to its high-end clients.
Now, a host of companies are feeling a different kind of Facebook effect. The social network’s stock has weighed on the stocks of other social media companies.
Zynga has seen its stock fall 18 per cent since Facebook started trading. And it may have influenced online travel site Kayak Software Inc to delay its IPO. The company said recently that it is waiting for market conditions to get better.
“The mood is pessimistic right now,” Hamadeh says. “But everybody is still holding out hope that the IPO market will recover, that somehow Facebook’s stock will recover.”
Sanjay Sabnani, the CEO of online community network CrowdGather, says the internet industry needed “a catalyst that captured the imagination of the American investment public, that the American dream is still alive in the internet sector.”
The IPO also stirred suspicions that Facebook is overvalued, that it’s not growing fast enough and that the consumer shift from personal computers to mobile devices will hurt its growth.
“The bad news is that it wasn’t explosive,” says Sabnani. “It didn’t bring money hand-over-fist into the internet sector.”
Steve Harrick, partner at Silicon Valley venture capital firm Institutional Venture Partners, still believes there is a lot of demand for great technology companies.
While there are a lot of companies waiting for an IPO, none are Facebook’s size and calibre.
Facebook served as the grand finale for a crop of big-name internet IPOs in the past year or so, beginning with professional networking service LinkedIn Corp, then Groupon, Zynga and Yelp.
There are a handful of large startup companies that have not signalled their intention to go public, such as Twitter, the San Francisco-based short messaging service.
For many in the technology sector, Facebook’s IPO doesn’t offer lessons or cautionary tales of any kind – because it was an anomaly.
It was the highest-valued US company ever to go public and the third-highest in the world.
It’s a household name and the amount of money it raised put its IPO in a class of its own. That brought a lot of attention, anticipation, and a higher-than-usual number of regular “retail” investors interested in the stock.
CrowdGather CEO Sanjay Sabnani says he’s not disappointed with Facebook’s IPO.
He thinks the market is more sensible now than in the late 1990s, the height of the infamous internet bubble.
He should know. In 1999, he was the president of a publicly traded company, Venture Catalyst, which helped startups get their footing. The company is still around but it’s no longer public.
“We know a lot more about what’s going to happen with the internet,” he says. “Back then it was…like digging for oil. We didn’t know what was going to happen.”