Facebook's rocky Wall Street debut could have wider repercussions for companies that want to go public in the future
Facebook continues to reel from its botched IPO, which has already prompted shareholder lawsuits and a public outcry over alleged back-room dealing between the social network and Wall Street. The company's stock price on Wednesday closed at $32, 16 percent below its opening price of $38, and investors are complaining that Facebook hasn't come even close to matching the breathless hype that accompanied its debut. The controversy has also awakened broader concerns that other companies, wary of repeating Facebook's mistakes, will become more reluctant to publicly trade their shares. Did Facebook's bungled IPO ruin the whole IPO market?
Small companies will think twice about going public: With its rise from a platform created in a Harvard dorm room to the world's largest social network, Facebook is a "small business mega-success story," says Kathryn Buschman Vasel at Fox Business. But botched IPOs for high-profile companies like Facebook and the daily-deals site Groupon have made small businesses doubt whether an IPO is a wise decision. Furthermore, Facebook's weak showing might send "signals to investors that the stock market might not be at its full strength," which would also discourage new IPOs.
"Did Facebook kill the IPO market?"
Tech IPOs, in particular, could come under scrutiny: Facebook's inability to meet expectations could have an effect on valuations of other tech companies, say Sarah McBride and Gerry Shih at Reuters. Facebook's overpriced IPO could dampen the value of "fast-growing social-media companies, an area in which many people believe a bubble is emerging." At the very least, tech companies entering the stock market will be discouraged from "squeezing the maximum possible value out of the public markets and not leaving a penny on the table" for other investors, as Facebook did.
"Silicon Valley takes Facebook fizzle in stride"
A calmer IPO market would be great for investors: If Facebook's example leads to "fewer initial public offerings at even lower prices," that would ultimately be a "positive for investors," says Karina Frayter at CNBC. Companies will be more inclined to set their IPOs lower, which would enable first-day investors to reap greater profits if the stock climbs.
"Facebook flop may create a silver lining for IPO investors"
Other stories from this topic:
- Winners and Losers: Facebook's botched IPO: Winners and losers
- The List: Who's to blame for Facebook's stock debacle?
- Burning Question: Facebook's underwhelming IPO: Proof the stock was overhyped?
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