The social media IPO of the century came to fruition today, but that was about it. One of the most anticipated IPOs of all time stepped onto wall street with a lackluster performance to put it mildly. Facebook (FB) hit the street at a price of $42.05 a share, made its merry little way up to $45 then headed south from there taking with it other companies closely related to the social networking giant.
Granted the expectations were high for facebooks big release, and yes markets have been roiled by the European debacle currently taking place; but for Facebook not to register a pop or to outperform the likes of Linkedin (LNKD) and its blockbuster IPO? People have to ask themselves, what’s going on here?
Facebook’s (FB) underwhelming performance on its inaugural walk on the street is the result of a number of reasons.
First of which, as mentioned earlier, world markets have been selling off as investors leave equities and riskier assets and move towards ones considered more safe and less volatile as the Euro Crisis continues to unfold. So yes, market conditions were not ideal but one would expect Facebook and its grand stature in the social media world to overcome the noise and generate a buying frenzy.
Secondly, it was no secret that smart money was taking flight from the stock and closing positions. Despite the large volume of shares changing hands, there was still a glut of sellers. Goldman Sachs (GS) alone dumped half of its position, cashing out early and flooding the market.
Finally, it may simply be the result of good old fashioned pessimism about the stocks actual value and future growth. At a price of $38 a share FB is trading at a P/E ratio of 107. One may think that warrants some caution buying into the stock, and it does, but all you have to do is look at LinkedIn (LNKD) trading at a staggering 618 P/E ratio and ask what is so different about these two and their IPOs.
Whatever the reason, Facebook will undoubtedly be on the watch list of many investors. Mark Zuckerbergs every move will be monitored very closely and scrutinized as he takes his private company, focused on its founders idea of connecting the world, to a profit driven public company responsible to its share holders.