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Editorial: Liking, disliking Facebook's IPO

Unique U.S. visitors to Facebook rose 5 percent

Unique U.S. visitors to Facebook rose 5 percent in April to 158 million, according to latest data. Credit: AP

Facebook's bungled stock offering last week won't be prompting many investors to click "like."

The instant gains commonly enjoyed by early investors in such initial public offerings didn't materialize. A technical glitch fouled up first-day trading on Nasdaq. And just days before the stock sale, bankers bringing Facebook shares to market told big clients they were lowering growth estimates for the social media company, raising questions about whether small investors got the short end of the stick.

What a mess. Facebook's stock sale seems to encapsulate nearly everything that is best and worst about 21st century capitalism in this country. In this case, evidently, we had to take the bad with the good.

On the asset side of the balance sheet, you've got an innovative technology company that was born in a college dorm a mere eight years ago -- and that now, at least arguably, enriches the lives of 900 million people around the world. That's presumably why they sign on to it so often.

The bright young Americans who started Facebook, moreover, gained access to the capital necessary to make their new business grow. In the process, the earliest risk-takers were amply rewarded, encouraging them and others like them to fuel growth and innovation by taking even more such risks.

While initial investors weren't happy that the new Facebook shares went down rather than up, well, let the buyer beware -- especially the buyer who invests only in the hope of a quick killing. It's worth remembering that shares in Amazon went public at $18 in 1997 and then fell. They closed yesterday at $215.24 in after-hours trading.

Besides, pricing an initial public offering is a dicey business; if bankers set the price too low, they give a gift to the well-connected buyers who usually are first in line when shares come out. If bankers set the price too high, not all shares will sell. Either way, a fledgling business and its earliest funders get shortchanged.

That didn't happen this time. Right out of the gate, Facebook's total stock market value exceeded that of such icons as Caterpillar and American Express, even though Facebook's profits are relatively small. That shares were initially priced at $38 on May 18 and traded as low as $30.94 three days later is a sign the bankers didn't leave any easy money on the table.

On the other side of the balance sheet, the Facebook offering was marked by some of the more dubious features of the current business landscape, including a certain amount of bubble-like optimism, investors too hungry for short-term gains, computers behaving badly at key moments, Wall Street bankers antagonizing the public (while earning $176 million in fees), a government probe and, inevitably, the lawsuits without which no debacle, large or small, would be complete.

It's great that a promising American business can raise so much money through the stock market, and that everyday investors can get a piece of the action. But it's too bad the process of letting the public in on the deal was so fraught. Investor faith in the stock market was badly shaken by the financial crisis of 2008. A fouled-up offering like Facebook's can only increase suspicion that the Wall Street game is somehow rigged.


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