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Facebook IPO

Facebook is a place where people spend most of their time as compared to any other internet property

Facebook an online social networking site, founded on February 4 , 2004 by Mark Zuckerberg with his

college roommates and fellow Harvard University students

Facebook held its initial public offering on 18 May 2012

Facebook issued 421 million shares at a price of $38. This price

valued the company at $104 billion

With 845 million active users and 2.7 billion daily likes and
comments in just 8 years Facebook IPO undoubtedly became one

of the biggest in technology and in internet history with the value of

issue of $16006.9 Million

Why did


According to the rule set by Securities and exchange

commission (SEC), from 1964 any private company
with more than "500 shareholders of record" must
adhere to the same financial disclosure requirements
that public companies do

That means filing detailed quarterly and yearly financial

reports, and dealing with all the scrutiny that comes with a
powerful company opening its books

Facebook growing big was crossing the shareholders requirements

as per SEC i.e. 500 and this became the key reason for the
Facebook to go public

Stock Price Graph

Facebook had issued its shares at $ 38 per share. But do you really think the stock traded at $38 per share?
Facebook IPO was launched at stock price $ 38 but it did not trade at $38 till August 2013

Looking at the graph you can see that from May 2012 till August 2013 stock price was trading below $38

What went
wrong with


Bad Valuation

Facebook generates money in 2 ways ,



Facebook generates around 80% of the yearly revenue by giving ads

on its site. Remaining 20% of the revenue is generated from other
sources. i.e. companies who owns the game pay ,Facebook for their

games to be shown on their site

As numerous experts have noted, the click-through rate on Facebook ads averages a dismal 0.051%,

or roughly one click per 2,000 viewers

In other words, Dozens of other websites have discovered, customers respond poorly to online
advertising, and prefer to shop via sites they find on their own

Bad Valuation

Due to this many advertising company may withdraw their money from
the Facebook site

General Motors announced to withdraw $ 10 million advertising buy

from the site just before the IPO

The fact is that Facebook has not yet been able to find an ad model which
generates revenue proportionate to its revenue

Facebook had sets its price at $28 $35 per share. But just before the IPO is launched the company raised
the price to $38 per share

After the negative disclosures and insider trading it became very clear that the facebook shares were not

perfectly priced

Bad Execution

Inspite the shares being over valued Facebook had

increased the number of shares by 25%

When the quick profit failed to materialize a couple of

the days after the IPO, The investors who received
more shares than they wanted effectively became
forced sellers

The timing of the key activities makes you wonder what signal the company was sending out

For example, the analyst handling IPO had cut the forecasts of the firm after the IPO filing update

At the same time Facebook leaders and their Investment Banking colleagues were pushing for sale at the
top end of their price range

Bad Timing and lawsuits faced

Facebook had faced a number of lawsuits following its IPO. Just prior
to IPO , Morgan Stanley as well as many other analysts lowered the
Facebooks earnings expectations which were not disclosed in

Facebooks S 1 filing

Many users had started using Facebook app in the mobile.

Facebook is finding it difficult to shift its ad sales to mobile platforms ,

a place the company admitted it does not currently generate any
meaningful revenue

Facebook had repeatedly warned in the IPO filing about the challenges they were facing in the

mobile advertising

Bad Timing and lawsuits faced

Due to this challenges of mobile advertising just before the IPO,

Facebook had realized that its 2Q 2012 revenue would be lower than
previously estimated in its IPO statements

This was communicated verbally to the large investors , but small

investors were kept in the dark

Due to this large investors made huge profits by betting against the
company or many others avoided major losses by backing out of the IPO
just in time, while small investors were left with overpriced shares

Since, 57% of the shares sold in the IPO came from Facebook insiders, investors had lacked confidence in
the stock

Technical Glitches

On the day of the trading, the stock opening was delayed due
to technical glitches, as NASDAQs electronic trading
platform was unable to handle the high volume of trades

Due to this some investors failed to sell their stock during the
first day of trading while the stock price was fallingforcing
them to incur bigger losses when their trades finally went

Due to all this reasons Facebook was not trading at the price on which it had launched i.e. $38 per

Stock Price Graph

Only from 2nd August 2013

Facebook had started trading at a
price of $38.05

From 2nd august 2013 till 22nd

August 2013 Facebook was trading
in the range from $38.05 $38.55

After 22nd August 2013 the stock

price of Facebook had started
increasing and todays i.e. 15th
April 2014 stock price of
Facebook is $58.89 per share

For more Information

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