NEW YORK (AP) — The botched offering of Facebook stock has raised several troubling questions, but at least we don't have to worry about the one that plagues many IPOs: How are a few select investors able to buy in early at lower prices and then pocket huge profits when the trading frenzy begins?
Among the many apparent missteps in its public debut, Facebook is accused of setting an opening price that was too high. Instead of spiking on the first day, shares inched up just 23 cents, to $38.23. The stock has mostly fallen since.
But some IPO experts don’t think this was the problem at all.
“The debacle was not the IPO but all the whining by speculators who didn’t make money.” says Lise Buyer, who helps companies plan initial offerings. Says Jay Ritter, a finance professor at the University of Florida, “Selling something for what it’s worth is the way most people think a market should work.”
For all its flaws, the Facebook debut did fulfill the chief purpose of a stock offering — to raise money for a company to pay bills, buy rivals, invest and expand. That aim is often lost amid the inflated expectations accompanying high-profile debuts.
In fact, a big opening-day pop can suggest the company got rooked and could have set the IPO price higher and raked in more money.
Last year, several Internet IPOs soared 50 percent or more on their first days, recalling the Main Street excitement of dot-com offerings more than a decade ago. Shares of the
online professional network LinkedIn, for instance, doubled in value the first day.
“Some of the pops were excessive,” says Ann Sherman, a DePaul University finance professor who feared another “IPO bubble” was brewing. Though disappointing to many, the flat Facebook debut came as a relief to her.
Whether Facebook blew it by committing the opposite sin — overpricing — is another issue. The stock closed Friday at $31.91, down 16 percent from its IPO price last week.
The downside of the Facebook faceplant is that it could discourage other companies from pursuing IPOs. Companies planning initial public offerings now number just 63, according Ipreo, a research firm. A year ago, there were 108 with debuts in the works.
A successful Facebook debut “would have brought back confidence in the market,” says Reena Aggarwal, a finance professor at Georgetown University. Now “companies might say, ‘Forget it, I'm not going public.’ ”
Photo: AP PHOTO
SLOW START: Facebook founder, Chairman and CEO Mark Zuckerberg, with microphone, rings the opening bell of the Nasdaq stock market, Friday, May 18, from Facebook headquarters in Menlo Park, Calif.
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