But almost as quickly the early gain faded, and shares of the world’s largest social networking company were trading just above their initial offering price before rebounding in the afternoon. Facebook’s stock was trading at $38.15 by 1 PM in New York.
The price band was initially set as $34-38. To celebrate the much-anticipated IPO, founder and CEO Mark Zuckerberg rang the opening bell at the NASDAQ stock exchange Friday morning. Facebook put up 421 million shares of its common stock for sale.
The IPO filing was managed by Morgan Stanley, JP Morgan, Goldman Sachs, Bank of America, Merrill Lynch and Citigroup.
Facebook’s initial public offering was “unprecedented in terms of the demand” from average investors, said Stephen Kay, a managing director at brokerage Knight Capital who works with retail brokerages.
Confidence in the Company
“It shows tremendous confidence in the guy wearing the hoodie,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business, referring to Zuckerberg and the signature sweatshirt he wore during meetings to market the stock. “He hasn’t specified how he’s going to do it, but he’ll have to do it to justify this price.”
Facebook grew its earnings 65 percent last year, faster than most companies. Facebook’s $16 billion share sale has surpassed that of General Motors, making it the second-largest stock market debut in US history.
At the current valuation, Facebook is now placed ahead of Amazon and Cisco, and ranks the 23rd largest U.S. company by market cap, according to Capital IQ.
In terms of total market cap, Facebook is now at $104.1 billion, the largest in the U.S history.
“Facebook is the 18th IPO worldwide so far this year to price above initial projections,” said Dealogic.
With a total share of 484.4 million, the social giant would be generating $18.41 billion, making it the second-largest U.S. offering ever behind record-holder Visa’s $19.65 billion deal in 2008.
Michael Mullaney, vice president and chief investment officer for Boston-based Fiduciary Trust, said only a handful of clients are interested in buying Facebook shares.
“If we did get one it would have been a small piece,” said Mullaney. “And then who would we give it to? Which one of our clients gets the shares? I’d rather trade it on the open market with every Tom, Dick and Harry. It makes my life easier.”
Ronald Coleman, head of research and institutional equity of Columbus Advisors Group in Taunton, Mass., said he was looking a target price of $50 to $55 a share.
“It’s a flop,” he said. “I was looking for a 20% to 30% pop on day one, and you didn’t see that. Long term, the model is still a good one, but the problem was they waited too long to go public.”
Underwriters then bought the stock to keep it from falling below $38 after its debut.
Chris Brown, manager of the Pax World Balanced mutual fund, made a $14 million investment on a secondary market before the IPO.
“Going into the IPO, there has been a lot of skepticism from investors, in particular institutional investors, questioning anything from whether the price of the stock is fair, to whether Facebook can successfully monetize and sell ads,” he said. “We’re long investors. It’s nice to have the stock up for one day, but it’s only one day. It’s hard to extrapolate much as to the future of the company.”
Investors’ Future Plans
Facebook has allocated nearly 15 percent of the shares to retail investors. Executive management team of Facebook plan to sell 89.4 million shares, including restricted stock units, options and common stock.
Others like Goldman Sachs aimed to sell 28.7 million, and Venture capital firm Accel Partners planned to offer 49 million shares to investors.
“There’s hundreds of millions of people that want to emotionally buy this stock and most of them are going to have to buy it in the aftermarket,” Jon Merriman, chief executive officer at investment firm Merriman Holdings Inc. in San Francisco, said before the stock began trading. “I’d like to see it season over a couple of months.”
David Menlow, president of research firm IPOfinancial.com expects to see the shares appreciate in coming days and investors should hold it for longer period.
“I think people will buy and hold for the longer term,” Menlow said. “We would like to see the company’s stock settle somewhere between $40 and $45.”