Facebook’s landmark initial public offering opened strongly – but belatedly – then fluttered back down to its IPO price, as other social media stocks sank as well.
Facebook opened the day strongly, although problems with the NASDAQ exchange delayed the first trade until about 11:30 a.m. EDT or so. Facebook’s shares promptly climbed to over $42, then sank to just a penny over the opening price of $38. Facebook’s stock then tumbled at the end of the day to close at $38.23, a bare 0.61 percent increase over the opening price.
Zynga, whose social games power about 10 percent of Facebook’s revenue, also saw its share price decline from an $8.47 opening price to $7.12, down 13.91 percent. Zynga’s stock peaked in early March at $14.69. LinkedIn opened at $104.95, peaked around the time that Facebook’s stock began trading, then also slipped under $100 to close at $99.11, down 5.56 percent. Pandora Media sank 7.41 percent to close at $9.74.
In all, the NASDAQ closed down 1.24 percent.
“What a disappointing IPO from an increase standpoint,” Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, said in an email.
Investors may have been scared away by Facebook’s own internal fear factors, as well as the “law of large numbers,” the principle that Facebook simply cannot demonstrate strong user growth when the company already counts nearly a billion users among its members. Investors may have also worried about Facebook’s ability to gain revenue from its mobile users, from which Facebook has admitted it hasn’t been able to derive a material amount of revenue.
Larry Chiagouris, a professor of marketing at Pace University’s Lubin School of Business in New York City, said in a statement that investors should pass on the Facebook IPO.
“If success is measured by return on investment, and that is how the business community measures it, then the Facebook IPO is not likely to be a great success,” he said in an emailed statement. “It is more likely to be a disappointment to all the new investors. This is because its real financial value is tied to its marketing value, and the marketing community is increasingly recognizing that Facebook is of very limited value as a marketing tactic.”
“The best advice to investors is to pass on this one,” Chiagouris added. “The best advice to marketers is to limit spending on Facebook until it can prove it returns meaningful results.”
