Initial public offering of Facebook

resisted buyout offers, suggesting the company was "definitely in no rush." For years, Facebook and Mark Zuckerberg, its co-founder and CEO, resisted both buyouts and taking the company public. The main reason that the company decided to go public is because it crossed the threshold of 500 shareholders, according to Reuters financial blogger Felix Salmon. Facebook reportedly turned down a $750 million offer from Viacom in 2006. That same year, Yahoo! attempted to buy the company for $1 billion but Zuckerberg refused. Facebook did accept investments from companies, and these investments suggested fluctuating valuations for the firm. In 2007 Microsoft beat out Google to purchase a 1.6% stake for $240 million, giving Facebook a notional value of $15 billion at the time. Microsoft purchased preferred stock, which meant that the company's actual valuation would be considerably lower than $15 billion. Meanwhile, that valuation dropped to $10 billion in 2009, when Digital Sky Technologies bought a nearly 2% stake for $200 million - a larger stake than Microsoft had purchased at a lower price. An investment report in 2011 valued the company at $50 billion. Zuckerberg wanted to wait to conduct an initial public offering, saying in 2010 that "we are definitely in no rush." But since by 2012 Facebook had more than 500 round lot (over 100 shares) stockholders, Facebook was subject to the SEC disclosure rules starting the next year, 2013. Zuckerberg had little choice as to whether an IPO had to be done at once. ==Preparation==

Filing and roadshow Facebook filed for an initial public offering on February 1, 2012 by filing their S1 document with the Securities and Exchange Commission (SEC). The preliminary prospectus announced that the company had 845 million active monthly users and that its website featured 2.7 billion daily likes and comments. The filing noted that the company's increases in membership, as well as its incomes, were slowing and that the deceleration was likely to continue. The document also stated that the company was seeking to raise 5 billion, which would make it one of the largest IPOs in tech history and the biggest in Internet history. The roadshow faced a "rough start" initially. Zuckerberg raised controversy for wearing a hoodie (rather than a customary business suit) to the first meeting with investors. Wedbush Securities analyst Michael Pachter called it a "mark of immaturity." Valuation Prior to the official valuation, the target price of the stock steadily increased. In early May, the company was aiming for a valuation somewhere from $28 to $35 per share ($77 billion to $96 billion). On May 14, it raised the targets from $34 to $38 per share. Some investors even suggested a $40 valuation, although a dip in the stock market on the day before the IPO ended such speculation. Ultimately underwriters settled on a price of $38 per share, at the top of its target range. On May 16, two days before the IPO, Facebook announced that it would sell 25% more shares than originally planned due to high demand. This increased the total number of shares to be sold at the IPO to 421 million. The Facebook IPO brought inevitable comparisons with other technology company offerings. Some investors expressed keen interest in Facebook because they felt they had missed out on the massive gains Google saw in the wake of its IPO. A number of commentators argued retrospectively that Facebook had been heavily overvalued because of an illiquid private market on SecondMarket, where trades of stock were minimal and thus pricing unstable. Facebook's aggregate valuation went up from January 2011 to April 2012, before plummeting after the IPO in May - but this was in a largely illiquid market, with less than 120 trades each quarter during 2010 and 2011. "Valuations in the private market are going to make it 'difficult to go public'", according to Mary Meeker, an American venture capitalist and former Wall Street securities analyst. Price targets Prior to the IPO, several investors set price targets for the company. On May 14, before the offering price was announced, Sterne Agee analyst Arvind Bhatia pegged the company at $46 in an interview with The Street. Early investors themselves were said to express similar skepticism. Warning signs before the IPO indicated that several such investors were interested in selling their shares of the company. ==Public trading==

In the immediate build-up to the offering, public interest swelled. Some said it is "as much a cultural phenomenon as it is a business story." Zuckerberg rang a bell from Hacker Square on Facebook campus in Menlo Park, California, to announce the offering, as is customary for CEOs on the day their companies go public. Those early jitters would foretell ongoing problems; the first day of trading was marred by numerous technical glitches that prevented orders from going through, or even confused investors as to whether or not their orders were successful. Only the aforementioned technical glitches and underwriter support prevented the stock price from falling below the IPO price on the first day of trading. At closing bell, shares were valued at $38.23, only $0.23 above the IPO price and down $3.82 from the opening bell value. The opening was widely described by the financial press as a disappointment. Despite technical problems and a relatively low closing value, the stock set a new record for trading volume of an IPO (460 million shares). The IPO also ended up raising $16 billion, making it the third largest in U.S. history (just ahead of AT&T Wireless and behind only General Motors and Visa Inc.). The stock price left the company with a higher market capitalization than all but a few U.S. corporations – surpassing heavyweights such as Amazon.com, McDonald's, Disney, and Kraft Foods – and made Zuckerberg's stock worth $19 billion. The stock saw another large loss the next day, closing at $31.00. The stock increased modestly in coming days, and Facebook closed its first full week of trading at $31.91. The stock closed its second full week of trading on June 1 at $27.72. By June 6 investors had lost $40 billion. Facebook ended its third full week at $27.10, slightly lower than a week previous. The stock stayed below the $38 mark for months and finally bottomed out in September 2012 below $18. The shares did not get back to the initial $38 again until August the following year, a full 16 months later. On December 11, 2013, Standard & Poor's announced that Facebook would join its S&P 500 index "after the close of trading on December 20," Reuters reported. ==Aftermath==

Financial The IPO had immediate impacts on the stock market. Other technology companies took hits, while the exchanges as a whole saw dampened prices. Investment firms faced considerable losses due to technical glitches. Bloomberg estimated that retail investors may have lost approximately $630 million on Facebook stock since its debut. UBS alone may have lost as much as $350 million. The Nasdaq stock exchange offered $40 million to investment firms plagued by offering-day computer glitches. Online travel company Kayak.com delayed its IPO roadshow in the wake of Facebook's troubles. Facebook has considered moving its listing to a competing exchange. Reuters' Alistair Barr reported that Facebook's lead underwriters, Morgan Stanley (MS), JP Morgan (JPM), and Goldman Sachs (GS) all cut their earnings forecasts for the company in the middle of the IPO roadshow. Some have filed lawsuits, alleging that an underwriter for Morgan Stanley selectively revealed adjusted earnings estimates to preferred clients. The remaining underwriters (MS, JPM, GS) and Facebook's CEO and board are also facing litigation. It is believed that adjustments to earnings estimates were communicated to the underwriters by a Facebook financial officer, who in turn used the information to cash out on their positions while leaving the general public with overpriced shares. Additionally, a class-action lawsuit is being prepared due to the trading glitches, which led to botched orders. Apparently, the glitches prevented a number of investors from selling the stock during the first day of trading while the stock price was falling - forcing them to incur bigger losses when their trades finally went through. In June 2012, Facebook asked for all the lawsuits to be consolidated into one, because of overlap in their content. On 22 May, regulators from Wall Street's FINRA announced that they had begun to investigate whether banks underwriting Facebook had improperly shared information only with select clients, rather than the general public. Massachusetts Secretary of State William Galvin subpoenaed Morgan Stanley over the same issue. The allegations sparked "fury" among some investors and led to the immediate filing of several lawsuits, one of them a class action suit claiming more than $2.5 billion in losses due to the IPO. Secondary exchanges Before the creation of secondary market exchanges like SecondMarket and SharesPost, shares of private companies had very little liquidity; however, this is no longer the case. Facebook employees had been finding private buyers to unload their shares as early as 2007, and when SharesPost launched in 2009, early employees started exiting en masse. Class B shares of Facebook traded as high as $44.50/share ($46.30/share after commissions) on SharesPost prior to the IPO. Reputational The reputation of both Morgan Stanley, the primary IPO underwriter, and NASDAQ were damaged in the fallout from the botched offering. In interviews with the media, bankers seemed sanguine about the outcome. "We think Morgan has done pretty well on the deal," one person at a bank that was one of Facebook's other underwriters told CNN Money. "Reputation of the bank aside, Facebook hasn't been a bad trade for Morgan." This is because even as the share prices dropped Morgan "racked up big profits" trading the shares. Morgan's reputation in technology IPOs was "in trouble" after the Facebook offering. Underwriting equity offerings became an important part of Morgan's business after the financial crisis, generating $1.2 billion in fees since 2010. But by signing off on an offering price that was too high, or attempting to sell too many shares to the market, Morgan compounded problems, senior editor for CNN Money Stephen Gandel writes. According to Brad Hintz, an analyst at Sanford Bernstein, "this is something that other banks will be able to use against them when competing for deals." ==See also==