Facebook’s Gettin’ Down on Friday

Wearing his trademark hoodie, Facebook CEO Mark Zuckerberg virtually rang Nasdaq’s opening bell from Silicon Valley this morning to kick off the start of what will be a very interesting Friday.

This is, of course, Facebook IPO day — the long-awaited and eagerly anticipated initial public offering of the social media giant. It’s an event that is being watched closely not only by Wall Street, but also by untold numbers of retail investors and even people who take little interest in stock market fluctuations.

“If nothing else, this is a retail-oriented offering, capturing the frenzy of 900 million users,” said Rob Steinberg, cochair of the mergers and acquisitions group at Jeffer Mangels Butler & Mitchell.

“It was inevitable there would be a frothy offering,” he told the E-Commerce Times. “Whether it can hold it, who knows?”

First-Hour Bump

Facebook priced the offering at US$38 per share Thursday evening, setting the stage for a historic $16 billion IPO, the highest ever for a technology company. The IPO puts Facebook’s market cap at $104 billion.

Within minutes after Facebook began trading, its stock rose 10 percent, reaching $42 per share, then moved slightly higher, to reach $43 per unit. Then it dropped by a few dollars, wobbling between $38 and $40 per share.

The Facebook IPO story is hardly over at noon, of course, especially since trading was delayed by a half hour on Friday. Still, speculation that it is an overpriced, overvalued stock has been running high since the IPO roadshow began, and the opening hasn’t quelled it.

‘A Bit Rich’

The $38 price point is a bit rich, Scott Sellers, CEO and cofounder of Azul Systems, told the E-Commerce Times.

“Look, Facebook is an amazing company — but from a financial perspective, it is coming out at the high-end range. I have seen a number of companies that priced high on the first day and then went back to more traditional valuations,” Sellers said.

That will likely happen to Facebook, especially over the long run, noted JMBM’s Steinberg, who likened Facebook’s stock to Amazon’s when it first went public.

The stock quickly rose to approximately $100 per share and then dropped like a stone, he recalled.

“It stayed low for years, slowing growing back into that $100 valuation,” said Steinberg. It now trades at $217 per share.

To put the Facebook valuation into perspective, he said, the company has a market cap that places it among the top 25 companies in the U.S. — “but it still hasn’t demonstrated how it will monetize its assets or deliver the revenues it needs to maintain that valuation.”

The Day After

Much depends on how Facebook moves its brand forward.

“I do believe there are a number of things Facebook could do to monetize its data and assets that it hasn’t yet,” Azul Systems’ Sellers said.

“One area is mobile — it is still an untapped arena for Facebook, so we will see some initiatives there that will have an impact,” he pointed out.

Another potentially rich area is gaming. “There is a vast market for lightweight social gaming on Facebook that even Zygna hasn’t tapped yet,” he said. “Facebook could do a lot more in terms of building a platform and encouraging social game developers.”

More Ad Data

Facebook will also have to open its data more to advertisers, James Green, CEO of Magnetic, told the E-Commerce Times — especially if speculation drives its stock price to unsustainable levels.

“There is going to be a massive collision between the frothiness of today and the way Facebook serves up ads,” he predicted.

Right now, advertisers aren’t allowed to tag their data with cookies on Facebook, said Green — a barrier that makes retargeting impossible.

“I am certain that is going to change,” he concluded. “Facebook won’t be able to afford to have advertisers wanting to spend money … and unable to do so.”