Facebook IPO Pops Early, Then Drops in Disappointing Debut

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Shannon Stapleton / Reuters

Facebook CEO Mark Zuckerberg is seen on a screen televised from company headquarters in Menlo Park moments after their IPO launch in New York May 18, 2012.

Facebook’s public debut — the largest tech IPO in history — performed below expectations Friday, jumping 13% to hit $43 just minutes after trading began, only to retreat quickly to the initial offering price of $38. At that point, the IPO underwriters, including the largest banks on Wall Street, stepped in and waged a buying-battle to support the price, according to The Wall Street Journal. The IPO faced early technical trouble, as the NASDAQ stock exchange was forced to delay the offering for almost 30 minutes. At the end of trading, Facebook shares closed at $38.23, essentially flat.

Earlier Friday, twenty-eight year-old founder Mark Zuckerberg rang the NASDAQ bell in front of hundreds of employees at the company’s Menlo Park, Calif. headquarters. And in a clever twist, a group of Facebook engineers hacked the NASDAQ button to automatically post the following status update to Zuckerberg’s Facebook page: “Mark Zuckerberg has listed a company on NASDAQ.” Facebook raised $16 billion at a valuation north of $100 billion.

Zuckerberg launched Facebook from a Harvard dorm room in 2004. Today, Facebook has over 900 million users. Thanks to the IPO, Zuckerberg is now one of the world’s richest men, worth about $20 billion. Thousands of employees and early investors will reap billions more.

(More: Facebook IPO: After the Hype, Investors are Betting on Hope)

Facebook investors are betting on steep revenue and earnings growth over the next few years. With $1 billion in profit last year, the company has an extremely high price-to-earnings ratio of 100-to-1, higher than Google’s when the search titan went public in 2004. Facebook users have given the company a treasure-trove of personal data ripe for targeted advertising. Zuckerberg’s challenge now is to use all that data to generate the kind of profit that will justify Facebook’s sky-high valuation.

Despite the enthusiasm over Facebook’s public debut, some corporate governance experts are raising concerns about the company’s controversial dual-class ownership structure. Zuckerberg owns 55% of the company’s voting control, meaning he will be impervious to takeover attempts or activist shareholders.

“Facebook swims against the tide of a global movement toward transparency, engagement, and checks and balances,” wrote Lucy P. Marcus, a Reuters columnist who covers corporate leadership issues. “It feels as if we’ve all stepped into a time machine and none of the past couple of years of governance lessons – including the failures of boards in the banking-sector crisis – ever happened.”

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