You would have to be from another planet to not have heard about the Facebook stock IPO. Since the IPO everyone has been asking “How low will Facebook stock go?” Good question given all the hype surrounding the issue of stock and subsequent bungling of the trading open by Nasdaq.
Bungled Facebook IPO Hurt Stock’s Reputation
There is no question the confusion and steep losses surrounding the Facebook IPO have damaged the company’s shares long term. While it’s hard to call the stock a pariah today, one can’t help but make the comparisons to the era of the dot-com busts so prevalent at the turn of the millennium. The hype, greed, and suspect valuations were all too familiar to those of us who survived the first dot-com craze. What makes the Facebook IPO all the more disturbing was the choice for the company and its advisors to bump up the size of the offering by an additional 25% days prior to the actual launch – further diluting already overvalued shares priced to sell at $38/share.
Investors Shying Away from Facebook Stock
Investors burned by the unfortunate (a kind word to be sure) mishaps with order fulfillment at the Nasdaq board will be unlikely to return for more given the free-fall which has ensued post-IPO. Investor groups are already forming up to file suit against any and all involved with the launch – and IMO with good reason. It’s pretty clear that the IPO was priced (and then expanded) at a method of valuation which was based on some pie-in-the-sky future earnings guesstimates which bore little resemblance to the more established day to day practice of present value or more realistic multiples valuations.
Facebook Stock Valuation Uncertain
In the days following the IPO, Facebook’s shares have fallen steadily – and on occasion sharply – to a present level just above $28 / share. This represents a ~25% drop from the IPO price and a 37+% drop from the opening day peak of $45 / share (how would you like to be that shareholder today?). It’s hard to determine when and whether Facebook stock will be a good investment. Recent social media darlings have opened to similar fanfare only to plunge into the reality that is earnings multiples and realistic valuations. Seems to me those day traders who have been successful at being able to make money trading Facebook stock were the ones either able to get in on the short side or take advantage of the early-available binary options traded on the issuing. For some lucky ones, binary options were the only way to get in on the short (put) side of the IPO. Personally I am glad at least *some* retail investors were able to get in on the right (short) side of this IPO dud.