Facebook IPO Fails To Deliver Anticipated “Pop”

I had assumed, as did many others, that Facebook shares would open at $38 and head north from there. In fact I thought demand would be so brisk that the shares might hit $100. Was I wrong.

I believed there was considerable pent-up demand for what was the biggest tech IPO ever. But that demand never fully materialized. Everyone that wanted to buy Facebook got a chance.

Still, at the close today Facebook was worth roughly $105 billion. And CEO Mark Zuckerberg is worth more than Google’s co-founders individually.

In the final run up to the IPO, Facebook floated more shares than it had originally planned. The higher volume may have played a role in preventing the “pop” that was widely anticipated. In addition, aggressive pricing by Facebook’s bankers may have contributed to the less than “robust” demand.

At one point FB was trading at $45 before closing very near its opening price: $38.27. Zynga shares were down because of the close association between the companies.

The stock market is largely driven by emotion, group psychology and expectations rather than by reason and logic. The Facebook IPO hype and expectations were such that a flat performance like this comes off as a failure.

All eyes will now shift to the quarterly cycle of earnings releases where investors will look for and demand signs of steady growth. Facebook net income from Q4 2011 to Q1 2012 declined, causing some concern about momentum. That may also have spooked some would-be investors today.

While Facebook has a goldmine of user data it faces a more difficult balancing act than Google did in growing revenues as a newly minted public company. The core of its model is making a huge body of user data available to advertisers. But users are fundamentally ambivalent if not hostile to being tracked or targeted by marketers on Facebook.

A recently consolidated $15 billion class action lawsuit against Facebook claims that the company invaded its users’ privacy rights by tracking them (on and off Facebook).

Paid-search never faced this quandary or choice between its users and advertisers. This is another reason, I suspect, that we’ll see some version of search/paid-search emerge at Facebook over the next 12 or so months.

Another tension or challenge Facebook faces is exemplified by GM pulling its $10 million ad budget from the site while retaining its free Facebook Profile. While most companies and brands want (even need) to be on Facebook, some may decide to shun the paid ads in favor of the free profile/page that is “working” by itself.

Of course, I could be wrong about that too.