The Facebook IPO Was Just Right

Peter Friedman post by: Peter Friedman

The Facebook IPO was just right.  Many are complaining that it didn’t shoot up on day one like other Internet IPOs. Well that’s just the wrong way to judge it. The correct approach is whether or not the stock was priced fairly and did the company maximize its capital raise in the interest of building value for customers and long term shareholders.  Facebook did just that. Our economy, the social media industry, Facebook customers and long term shareholders are better off and should be happy.  Speculators may be disappointed in not having a chance to make more than 10% on a first day flip, but they add no value to the company and its customers.  They are one day gamblers and their interest should not be the basis of evaluating an IPO.

Since the late 90’s Internet boom IPOs have been priced at a discount to true market interest so investment bankers and their top customers could make a lot of money on day one as the stock price soared and then fell. The stocks were deliberately priced lower than they could have been so big customers of big banks could easily buy it and then sell it the same day at market or higher to make a profit.  This initial climb in stock price would often set off a speculating frenzy.  But when those companies issued their IPO stock for less than they could have it also meant they raised less capital. Capital that could have hired more people, developed more products, created more growth and value. In our LiveWorld 1999 IPO (under the name Talk City) we left about $15 Million on the table this compared to a $60 Mill raise.   Had Facebook  priced 20% lower to allow more of a flipping frenzy,  the company would have left  $2 Billion + on the table.  Money better used to build value for customers, employment for the country and long term shareholder value than to line the pockets of one day gamblers.

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