Some call it a cultural phenomenon. Others label it a colossal waste of time. No matter the sentiment, all attention was on Facebook’s IPO entrance on Friday. Well, except for NASDAQ, who was too focused on repairing its malfunctioning technology, oh, and the European Union, who was busy worrying about its looming financial collapse.
Instead of skyrocketing, as was widely predicted among analysts on the Street, Facebook closed up a mere $0.23 cents, not even gaining 1%. News circulated during the day that even Facebook’s bankers had to jump in and support the stock from breaking its offering price. A far cry from LinkedIn’s IPO entrance, almost exactly one year ago, which nearly tripled its offering price during its first trading day.
The most anticipated IPO of the decade and largest technology offering in history had a less than stellar IPO debut. Yikes. What does this say about America’s capital markets? What does this mean for its economic future?
If we’ve learned anything today, it’s that timing is everything and no one, not even Wall Street’s finest, can predict the ideal day to go public. Sometimes you just “pick the wrong day to quit amphetamines“. But, bankers can sometimes price an offering correctly. And this was one of those times. Had Facebook’s stock price shot through the roof, Friday’s headlines would have read something like, “Once Again Wall Street Bankers Underprice a Deal & Screw the Issuer”.
Facebook’s underwriters should be commended. But I do not want to give them too much praise for fear it will go to their heads and result in the creation of yet another destructive derivatives product. “There’s no reason to become alarmed, and we hope you’ll enjoy the rest of your flight. By the way, is there anyone on board who knows how to fly a plane?” Sorry – once you start quoting the movie, “Airplane”, it is almost impossible to stop.
Facebook’s lackluster IPO performance also affirmed what we all know but most don’t like to confront – the public markets are significantly broken. It is challenging for companies to thrive in a trader-centric marketplace where fundamentals are rendered practically meaningless and company stock prices are at the mercy of extraneous events. Last week, Europe sneezed and Facebook caught the flu.
Unfortunately for Facebook, not too many traders came to the realization that Europe’s bleak financial future and rising unemployment actually benefit Facebook’s business. Look how many more jobless people will now have time for Facebooking. Does anyone see the irony here?
Facebook, say goodbye to the autonomy of the private markets. Now, instead of being valued on your own merits, you’ll be assessed based on the accomplishments and failures of those who have nothing to do with you, subject to the second-by-second mood swings of those judging you. Welcome to public market hell where you will now be viewed as a ticker symbol as opposed to the global innovator you are.
Don’t worry, “FB”, many considered the IPO of “GOOG” to have been a great disappointment too. Contrary to “GOOG”, at least you were not forced to slash the price and size of your offering. And remember Webvan’s hot IPO? Its stock price more than doubled during its first trading day. Perspective.
So just where was Facebook’s aftermarket love on Friday? This leads me to the final and most important lesson of the day. Even the most grandiose of companies have trouble thriving in a marketplace that lacks the aftermarket support derived from long-term investors who are more interested in funding companies rather than trading tickers. These long-term investors are a company’s clients, its customers, its users, its partners and its supporters. In Facebook’s case, they are the 900 million across the globe sharing updates, photos and videos every day. If each user bought just one share of FB, it would equate to $34.2 billion in pent up demand.
I don’t doubt that Facebook will ultimately achieve success in the public markets. It is one of maybe a handful of companies on the planet, including AAPL and GOOG, who can provide its own aftermarket support by harnessing the crowd. According to Gene Massey, CEO of MediaShares and leading expert in Direct Registration methods, “Once Facebook has been public for 12 months, it can offer a direct stock purchase option to its massive user base. By doing so, it will not only gain stock support, but Facebook will also add valuable shareholder demographics to its existing database enabling it to become the world’s most powerful marketing and fulfillment company in history.”
Unfortunately, the vast majority of companies entering the treacherous public markets do not have a support group of 900 million. Unless something is done to fix the aftermarket deficit, more and more publicly traded companies will find themselves dying a slow painful death. This will only result in additional long-term investors fleeing the public markets in search of greater stock appreciation.
The fact is the mass exodus has already begun. The fastest growing companies no longer reside on NASDAQ. They are found in the rapidly expanding marketplace for private company stock (PCM).
Facebook has inspired a new generation of social businesses poised to capitalize off its extraordinary media platform. Many of these micro and small cap companies are already enjoying spectacular revenue growth. Historically, most of these companies would have been public at this point in their life cycle, creating wealth for public market investors. However, it makes no fiscal sense for these companies to be public today.
These private companies are all thriving, in part, because their investors consist of long-term shareholders who believe in their products, their businesses and their visions. Don’t all companies deserve the right to attract investors whose interests are more aligned with their own? Shouldn’t all investors have the opportunity to invest prior to a company’s greatest growth spurt? Shouldn’t all investors have the freedom to invest their own money as they see fit?
224 days, 16 hours, 38 minutes, 16 seconds until the democratization of the US capital markets.