Wall Street will be watching intently as Facebook moves into its first full week as a public company after an initial public offering Friday saw its newly traded shares stall.
Facebook stock ended its first day of trading about where it was originally priced, at $38 a share, and only because underwriting banks stepped in to support it several times when it appeared to risk dipping below that level. While expectations had varied on just how high it would go on day one, some pop had been expected.
The lackluster debut dragged down other tech stocks. Online gaming company Zynga, which depends on Facebook for most of its business, saw its shares plunge by more than 13%.
Facebook continued with business as usual. Later Friday, it acquired Karma, a startup based in San Francisco that lets users send gifts via mobile phones. On Saturday, Facebook founder Mark Zuckerberg married his girlfriend, Priscilla Chan.
The cyclone of IPO hype was peppered with warnings about Facebook’s earning potential and the number of shares that went to market, 421 million, which was a large number to absorb. Facebook, a household name with 900 million monthly users, was a victim of sky-high expectations, and the consensus was that the IPO fizzled. A huge bump right out of the gate indicates avid demand for a stock, although it can also backfire later on if shares fall back.
The stock, which trades on the Nasdaq under the symbol FB, closed at $38.23, only slightly above the $38 at which it was priced on Thursday. It popped at the open, rising 12%, and spent several hours at about $40 before settling.
Trading glitches marred the first day. About 580 million Facebook shares changed hands, driving overall market volume to the highest level so far this year.
The size and scope of the deal can’t be understated. Facebook now has an official market capitalization of $104.6 billion – vs. $78 billion for Walt Disney and $47 billion for News Corp. — and founder and CEO Zuckerberg is the 28th richest person in the world, owning about 56% of the company post IPO.
Facebook raised $16 billion, split between the company ($6.8 billion) and existing shareholders ($9.2 billion). Banks and institutions are the biggest holders, but the company, a cultural phenomenon, also attracted thousands of individual investors — much as people buy shares of Walt Disney for kids and grandkids.
People were huddled in Times Square outside the windows of the Nasdaq site waiting for the stock to open, the AP said. They were holding up cellphones and cameras pointed at the Nasdaq board, waiting to get a picture of the first price change.
Even at $38, many Wall Streeters considered the stock expensive given Facebook’s price-earnings ratio compared to other tech companies like Apple. It’s $4 billion in revenue comes from advertising, but it may face challenges growing that number in line with Wall Street’s expectations.