The biggest IPO of the year has come, but news about Facebook’s offering hasn’t gone away yet. Much has been written about how its stock is down about 25% from its offer price. Questions have been asked about both underwriter Morgan Stanley and the NASDAQ exchange itself.
But is Facebook’s stock fall really that surprising? Haven’t we, ourselves, noted that the recent trend for social tech stocks is to fall after going public? Let’s compare Facebook directly to previous tech IPOs and find out.
The answer is grim, at least in part. The average tech IPO since 2011 has started strong, though it relinquishes some of those gains 13 days after its offering. Facebook, on the other hand, is underwater and with a -29% return from its offer price. At this point in time, the only other IPOs to be in the red are FriendFinder Networks, Zynga and CafePress, not exactly great company.
Several events have contributed to Facebook’s stock slump, including questions surrounding Facebook’s growth potential, underwriter Morgan Stanley’s supposed forecast changes, and NASDAQ system issues for which they are proposing a $40 million fix.
This isn’t to say Facebook has no growth potential, but it can’t be denied part of the issue is that Facebook is already so big. Companies used to IPO with annual revenues in the tens of millions and then grow to become billion-dollar enterprises. Facebook is already making $1billion in profit. It will be difficult for Facebook to see a level of growth like older tech giants, even in the long-term.