THE PUBLIC EYE: The Facebook Debacle
On May 17th, Facebook had its long anticipated Initial Public Offering (IPO). It sold shares at $38 each, giving it a market valuation of $104 billion. For an instant, Facebook was the 23rd most valuable company in the US. The ensuing debacle serves as a metaphor for the US in general.
Facebook is an eight-year-old social networking service that has over 900 million users worldwide. It’s a convenient way to maintain contact with family and friends – for example, to post photos of your new relationship or grandchild or pet.
There’s nothing wrong with Facebook selling stock in order to raise money and compensate its employees and investors. It’s the dream of every entrepreneur to start a company that one day becomes successful, has an IPO, and makes its founders wealthy. It’s the nature of the free market.
But in this case there was a serious problem with the valuation of Facebook stock. On May 17th Bloomberg Financial Services reported that at $38 per share, Facebook would be “the largest company to go public in the U.S. by market capitalization… Facebook's valuation is worth the combined market capitalizations of News Corp., Time Warner Inc. and CBS Corp.” At its offering price, Facebook was worth more than: Amazon, McDonald’s, Cisco, Comcast, Visa, and Citigroup, among others. On May 17th Facebook ranked in the top 10 of technology companies; Facebook was worth roughly half of Google, the company it is most often compared to.
Then the bubble burst. As soon as Facebook shares (ticker symbol FB) were available to the public, the price began to drop. As of this writing, the stock price is $26.31 and the market value is $56.25 billion.
-more-