A year ago tomorrow, Facebook went public.
It was one of the most breathlessly anticipated public offerings in history.
For years, people who knew nothing about Facebook or the stock market had been elbowing each other out of the way to try to get in on the action. Facebook was going to be “bigger than Google.” Facebook’s IPO was going to be an unprecedented free-money bonanza. All you had to do to win was play…
(Those who warned that Facebook looked like overpriced “muppet bait,” meanwhile, were dismissed as worrywarts who were just raining on the parade.)
Facebook’s stock priced at $38, opened at $40, and then, within 10 market hours after the pricing, tanked.
Four months later, it bottomed at $18, and has now found some stability in the mid-$20s (where, at about 35X next year’s projected earnings, it is still arguably expensive).
For months after Facebook’s IPO flop, pundits around the world howled about what a terrible outcome this was for the company, how Facebook’s brand would be forever tarnished, how investors would always hate Facebook, how Facebook’s young CEO had fatally blown it, how investors would never trust Wall Street again…
Facebook insiders, meanwhile, pointed out that Facebook had merely accepted the price investors were willing to pay for its stock–and, in so doing, had avoided giving away billions of dollars in an overnight stock “pop” just so the press could write some hyperventilating headlines about how “successful” the IPO was.
Facebook’s IPO, the insiders pointed out, was highly successful: Facebook raised ~$10 billion of cash at an excellent price.
And in accepting the market’s “bid” for its stock, insiders also pointed out, Facebook had just done the same thing that any savvy house seller would have done–sell the house for the price the market was willing to pay.
“But, NO!” roared the myopic market pundits, Facebook had SCREWED UP.
Facebook had RUINED ITS ONE CHANCE WITH INVESTORS.
Facebook had SEALED ITS FATE.
And yet, a year later, except by those who had the misfortune of paying too high a price for the stock (who have now presumably learned an expensive but valuable lesson), Facebook’s IPO has been completely forgotten.
Now, Facebook is just another public company.
Facebook is trading at a very healthy valuation (again, 35X next year’s expected earnings).
Facebook has already taken the opportunity to buy back some of its stock at a low level.
Investors who bought Facebook’s stock when it traded down to the teens are presumably quite happy.
So it all worked out fine.
Importantly, by establishing up front that it wasn’t going to just hand Wall Street free money, Facebook also set the precedent that it wasn’t going to run the company with Wall Street’s short-term screaming in mind.
Unlike most companies, Facebook is aggressively investing for the long term, depressing its near-term earnings in the process.
This aggressive investment no doubt infuriates some Wall Street fund managers, who probably feel that Facebook’s only concern should be getting and keeping its stock price as high as possible.
But this aggressive investment, which most companies aren’t bold enough to do, is likely giving Facebook a much better chance of creating a much more valuable company over the long haul.
In other words, just as it did during the IPO, Facebook is keeping Wall Street in its place.
It’s looking out for Facebook and Facebook users and long-term Facebook investors, not just short-term Facebook traders.
And its IPO “flop,” which was slammed by almost every market pundit on earth, is now irrelevant.