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Facebook goes public and lands on its Face... Ouch!

So Facebook recently went public and flamed out in spectacular fashion (including a lengthy delay in opening on the Nasdaq and proceeding confusion over whose orders had been filled and whose had not).

The stock opened at 38 bucks, rose to 42, and then proceeded to return to 38. Since then it has fallen to 31 bucks.

What's even more important to note is that both the $38 and $30-32 range only held due to the underwriters propping the stock up, buying shares at those prices to stop the stock from falling further.

How long can they do that before they simply can't dump any more money in there? Who knows, maybe Bernanke and Obama will give Morgan Stanley stimulus money to be used solely to prop up FB's share price moving forward (after all, FB is too big to fail for America's social networking industry).

But seriously, I won't be surprised if in a year from now Facebook is trading between 14-20 bucks a share.

For PR folks, what's important in this story is how this is a classic example of how investor relations can stick dynamite all over public relations and blow brand equity all to hell. Before this IPO Facebook clearly had the #1 brand when it came to social networking. While they probably still do, there's no question that this IPO has tarnished their brand tremendously.

The people who got burned in this IPO were retail investors mostly. Basically every day schmucks who bought FB stock (most of them probably at 42 bucks... since 38 was the pre-market price) because they love Facebook.  The institutional investors got their shares at 38 and probably dumped them at 42 making a nice 10 per cent plus gain for the day. Meanwhile, retail investors who bought in at 42 (right after the markets opened) are now sitting on a 20 per cent plus loss.

Part of the drop in FB's price is the result of FB's investor relations folks disclosing financial details to a select group of investors and not everyone else (which by the way is illegal). As a result, those 'in the know' pumped and dumped, while investors 'in the dark' were suddenly left holding the bag as revelations came out that FB was concerned about a declining trend in advertising revenue.

So FB flubbed this one on every front and tarnished their brand. It won't destroy them by any means, but you can only tarnish your brand so many times before you don't have a brand that's worth anything. Let's hope for FB's sake this was a one-off.

Best FB Coverage - Globe and Mail

On a separate note, the thing that impressed me the most about the endless stream of circus-like media coverage around the FB IPO was a really nifty thing that the Globe and Mail did.

They had/have an interactive chart of user opinions on whether it is a good idea to invest in the FB IPO.

You can view the chart here.



I love when G&M does stuff like this because I find user reactions to stories almost as interesting as the stories themselves.

It's also interesting to note that 64 per cent of respondents felt FB was a bad investment.

Why did FB IPO?

I have to say I was not in the least bit surprised by the FB fiasco. Why in the world would they go public now when the markets have pretty much peaked and we are looking at the very real possibility of a crash in the near future?

On the surface it makes absolutely no sense why they would do this now.

Unless of course you believe that the REAL economic collapse hasn't even happened yet. 2008 was merely the preview teaser of the real crash. In that situation, you may very well want to take the company IPO and make whatever you can, because in a Great Depression style crash social networking may very well see its revenues plummet.

I suspect Zuckerberg figured, get the sucker IPO now so that the employees could sell their stock (in six months) and make their millions and be financially stable should an economic crash occur.  It would have really sucked for employees if FB didn't IPO (for say a year or two), the crash occurred, and then they are stuck as 'paper millionaires' until the company could actually IPO.

This way they can pawn as much of their stock off on 'retail investors' and walk away with actually real cash in hand.

That's my little theory as to why FB went IPO instead of pushing it out until the economy (and markets) were more stable.

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