Shares of Facebook Inc. (FB) made a none-too-impressive opening on its market debut Friday at $42.05, about 11 percent higher than the listing price of $38.
Nonetheless, the frenzied pace dropped after the first hour of trading in which Facebook gained nearly 13 percent. Almost quickly, the stock pared gains and dropped to as low as its IPO price of $38. The stock has since picked up and is currently trading at $39.05, up about 3 percent.
Facebook's co-founder and Chief Executive Mark Zuckerberg rang the opening bell of Nasdaq trading on Friday remotely from Facebook's headquarters in Menlo Park, California.
Investors eagerly awaited the debut and were not overtly disappointed. The social networking site made its mark with trading volumes exceeding 100 million in the first four minutes of trade on the Nasdaq. Nevertheless, the stock did not perform as expected by investors.
The not so impressive opening could linked to to Facebook's high valuation, GM withdrawal on ads, and the current soft markets globally. Facebook priced its initial public offering at $38 per share, which was at the top end of its estimated price range of $34 to $38. The company offered 421.2 million shares in its IPO.
Facebook was founded by Zuckerberg, along with Harvard mates Dustin Moskovitz, Chris Hughes and Eduardo Saverin, in his university dorm. The world's largest social networking site currently boasts of about 900 million global users, with about 500 million of them logging in every day, something like the third largest populated nation in the world.
Meanwhile, Facebook's debut also impacted other social networking site performances. Zynga Inc.'s (ZNGA) shares plunged about 13 percent to about $7.19, and was halted twice. Zynga, the developer of online games such as FarmVille, CityVille and Zynga Poker, generates most of its revenues from Facebook. Shares of LinkedIn Corp. (LNKD) fell 4 percent, while Groupon slipped over six percent. Other major social sites like Pandora Media Inc. (P), Yelp Inc. (YELP), Zillow Inc. (Z) and Renren Inc. (RENN) also lost about five percent.
Facebook's IPO, the largest ever for an internet company, raised $16 billion, giving the Menlo Park, California-based Facebook a market valuation of $104 billion, higher than that of Yahoo, Dell, Cisco, Visa, Amazon.com and HP. Nevertheless, the valuation that Facebook has garnered is more than 100 times its earnings last year, compared to average of 13 times for these companies.
It would, therefore, be reasonable to expect that Facebook would take many years to reach a stable level of profit earnings ratio, but only if it can keep posting surging profits.
Facebook's IPO comes at a time when questions have been raised about its revenue growth model. Facebook's first quarter revenues dropped 7.5 percent from the previous quarter, which the company attributed to seasonal trends and lower ad rates. The company's profit also dropped 12 percent to 205 million from a year ago.
Another setback for Facebook was GM plans to stop advertising on its site, after the automaker concluded that advertising on Facebook had little impact on its sales. This is a worrisome issue because when a big brand like GM sees Facebook ads as not beneficial, chances are many more may follow suit. Facebook generates majority of its revenue from online advertising.
FB is currently trading at $39.02, up $1.01 or 2.66%, on a huge volume of 453.1 million shares.
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