Facebook has gone from hype to hysteria in barely two weeks. The biggest IPO of a technology company ever - with proceeds of USD 16 billion - ended in disappointment and in some ways turned almost into a soap opera. Media reports are now full of lawsuits and possible damages claims, similar to the crash of the first internet bubble around the turn of the century.
Some may recall Nina Brink's thumbs-up at the listing of World Online, which lost two-thirds of its market value within a month of the IPO. A more recent example is the takeover of Hyves by Telegraaf Media Group, after which the Dutch social network quickly started losing members.
Was Facebook founder and CEO Mark Zuckerberg aware if Morgan Stanley was providing selective information to investors about reduced sales expectations for Facebook? At the very least, he must have known of the lower forecasts. Not making this public before the IPO could be seen by some as common sense (it helped Zuckerberg and Facebook raise USD 16 billion), but many may see it as a financial sin.
Years of lawsuits ahead will show whether Zuckerberg, Facebook and Morgan Stanley were complicit in misleading investors, or merely stunned by all the hype surrounding the IPO. Morgan Stanley will certainly be under pressure to show that it did not tell only its important customers about the reduced forecasts for Facebook, leaving smaller investors in the dark.
Nasdaq can also expect some criticism. The technology market could not keep up with the huge number of orders the first day of the IPO. As a result, many buy orders did not get through or were delayed, resulting in investors paying a higher price for shares that had already fallen in price. Knight Capital suggests that this could lead to damages claims from both retail and institutional investors.
The hype ahead of the Facebook IPO was clearly exaggerated, but the hysteria afterwards is just as bad. Suddenly analysts emerge saying it's logical that Facebook shares would fall in value: its business model is not really stable. As if this is a new idea, and everyone before the IPO saw only explosive growth ahead.
The best advice is to ignore all the stories about Facebook in the next week. The hope is that realism will return in that time, putting the hype of the IPO behind it. Not everything Facebook touches turns to gold, and its image has lost a good deal of its shine. But as long as the social network site is still used by around 900 million people, there is still enough potential to turn this into a profit. Certainly in the mobile segment, there is lots of room for growth. With a realistic business model and market capitalisation, Facebook still has plenty of years ahead of it.
