Facebook has consistently refused to implement a dislike button, but after this morning’s stock performance, they may want to reconsider (at least for investors). Shares of Facebook (FB) are down over 13% to start the trading day this Monday morning, a steep plunge that was expected after Facebook’s IPO went off not with a bang, with with a whimper. After an initial pop of approximately 20% early Friday morning, shares of Facebook finished almost exactly where it started at – $38 a share.
Facebook had received considerable buzz over its looming IPO, considered the hottest tech stock to hit the market since Google back in 2004. Even though Facebook is profitable, its 2011 net income of $1 billion is considered way too low to justify a $38 per share valuation. Google was making considerably more money when it went public eight years ago, and today it generates profits 10X as much as Facebook, despite having only a 2X advantage in market value compared to Facebook.
Also consider that shares of Facebook have been traded on the secondary market for almost three years, gaining significantly in value before retail investors had any chance of buying in at a low price. Not to mention that many of the major shareholders (investment banks and CEO Mark Zuckerberg himself), sold tens of millions of shares on Friday. If investment banks though the share price would increase significantly more than the initial $38, don’t you think they would have held on to their shares?
Finally, and most glossed over, is the fact that Facebook didn’t particularly want to file an IPO in the first place. They were forced to publicly list by the Securities and Exchange Commission, which has a rule that requires private companies must go public when their total number of shareholders reaches 500. Facebook qualified and was thus forced to go public.
I must point out that demand for Facebook stock was still enormous on Friday, with over 500 million shares traded. But if today’s crash is any indication, a lot of investors are going to strongly reconsider their position in Facebook.