Was Facebook's IPO Overpriced, Underpriced, or Just Right? Comparing with Twitter
The success of an Initial Public Offering (IPO) often hinges on the price at which the shares are offered to the public. This brings to mind the contrasting cases of Facebook and Twitter, two tech giants with diverse strategies and outcomes.
Twitter's IPO: A Fast-rise Stock and Profit Maximization
Twitter's IPO in 2013 was a wild success, raising approximately 1.8 billion dollars by offering a pool of 70 million shares at 26 per share. Investors were exhilarated by the company's growth potential and the stock price surged to almost 45 per share by the end of the first day of trading on November 7th, 2013. However, it is crucial to understand that for every 10 dollars the stock rose, Twitter and its existing shareholders effectively gave up 1.3 billion dollars by leaving the extra value with buyers.
Nevertheless, Twitter's IPO was a model of a problem-free offering, with no complications or technical issues that could have sabotaged its success.
Facebook's IPO: A Strategic Pricing Game
Facebook's IPO in 2012 was a different story, but equally fascinating in its strategic approach. The company offered over 421 million shares at 38 per share initially, a price that increased to the top of the range shortly before the debut. Facebook's CFO, David Ebersman, played a significant role in this high-price strategy, ensuring that the shares were priced as close as possible to their perceived value.
By doing so, Facebook managed to raise almost 16 billion dollars, a staggering amount. While the total proceeds from an IPO are usually less than the quoted amount due to the sale of shares by early investors, the core principle remains that successful IPOs maximize the value received from investors. However, the high initial offering price inevitably led to a slower share price appreciation after the IPO.
Technical Glitches and Financial Scrutiny
The first days of trading on the stock market for both companies were not without hitches. Facebook faced technical glitches during the IPO, leading to a bumpy start. Furthermore, revelations about revised financial statements sullied Facebook's image, negatively impacting its stock price performance in the following months.
While we can only speculate about alternative scenarios, it is evident that the IPO's outcome for Facebook was significantly impacted by these events. Conversely, Twitter demonstrated that a well-executed IPO, free from technical issues and financial controversies, can lead to rapid stock price appreciation.
The Takeaway: Strategic Pricing and Market Reception
The takeaway from this comparison is that despite taking significant flack from shareholders, Facebook's IPO strategy can be seen as a strategic pricing decision that maximized the company's benefit. Whether it was overpriced, underpriced, or just right is a matter of speculation. The evidence points to a successful IPO that achieved its financial goals, albeit with some short-term market impact. In the long run, Facebook has continued to grow and remains a major player in the technology sector.
For tech companies and IPO investors alike, the lessons from Facebook's and Twitter's IPOs should highlight the importance of meticulous planning and execution. While there are numerous factors that can influence IPO success, strategic pricing and strong market reception are undoubtedly key elements.