Why are those who claim that the Facebook IPO failed?

If you look at the headlines on Friday's news, you might get the impression that the Facebook IPO shamefully failed. Wall Street Journal announces “ Facebook IPO chokes ”
and even we here, in TechCrunch, wrote that the bankers “ with all their might ” are trying to keep the price [From translator: there was a topic on this topic on Habré too ] . As if this IPO was not one of the biggest in US history! If you believe the pessimists, the most important thing is that Facebook shares did not take off right after the IPO, as many financiers predicted. Guessing “take off or not take off” is a great entertainment and a way to once again promote yourself in the news, but this is not the essence of the IPO. Focusing on the rise or fall of the shares after the initial public offering means absolutely not to understand what an IPO is and why it is needed. If you use the right criteria, the Facebook IPO went just fine. And that's why.

1. The best IPO maximizes the amount of money received by the company and at the same time minimizes the blurring of the share of existing shareholders. An IPO for a company is the same stage of financing as the initial investment rounds for startups. Simply put, its success lies in raising as much money as possible by selling stocks as expensive as it can swallow the market. If the price is lower, the company will get less money or will have to more dilute the share of the original owners. If the shares did not take off immediately after the initial public offering, then the company hit the bull's eye, having guessed exactly the maximum price.

2. The best IPO minimizes commissions, overhead costs and generally any money flowing into the pocket of third parties. Mark Zuckerberg and Sheryl Sandberg expertly conducted an IPO so that the company would get the maximum benefit, not the financiers and their clients. Bankers receive a fee for bringing the company to the market, usually a percentage of the amount that they managed to gain during an IPO. In the case of Facebook this is a lot of money. How much effort did they have to make, considering how much excitement arose around the company? They received as much as 176 million dollars, not much straining. And, although this is a huge amount, Facebook was able to bargain for very favorable conditions for itself. Usually bankers take about 7%. Facebook paid a little more than 1%.

The fact that the shares did not take off means that Facebook did not unnecessarily share with outsiders. When shares take off, the income is received by the clients of investment banks, usually large institutional or individual investors, who have access to the shares at the initial offering price. Bankers often underestimate the stock price so that their clients are guaranteed to make a profit. Did they earn it? The fact that these few lucky people, rubbing their hands, rush to the bank for fresh money, employees and shareholders of the company do not get any better. They either get less money than they could, or they erode their share more (or both at once). In the case of such a huge company like Facebook, even a small takeoff means a huge amount of lost profits.
')
(You should not be too serious about the stories of unfortunate financiers who selflessly keep stocks from falling - they do it for the sake of the additional profit that the offering option can bring, allowing them to buy back additional shares of the company at the IPO price, thereby provoking a deficit and price increase. Not Doubt - such “support” will instantly evaporate as soon as it becomes unprofitable. In the meantime, they received their 176 million fees plus commissions from all further transactions in the market with the company's shares. Only this Friday Commission amounted to another 8 million.)

3. The value of investments is determined in months and years, and not hours and days. What about investors who have not earned anything yet or have even lost by buying Facebook shares? If they invested for the same reason that angels or venture investors do it - belief in the prospect of long-term growth of the company - then it was a mutually beneficial deal. The company has expanded the base of investors who are not interested in short-term price throwing, and who will not put pressure on the management, forcing them to make decisions that promise only momentary benefits. Anyone investing in an IPO, hoping that the stock will take off soon, is trying to predict the short-term behavior of the market. There is nothing wrong with that, but this is more of a gamble than an investment. I think that many of those who bought Facebook shares look to the future with optimism. I bet that any company that has nearly a billion customers must be worth a lot of money.