Is the disastrous Facebook IPO a sign of a social bubble? Is the disastrous Facebook IPO a sign of a social bubble?
Social media stocks don’t have a great reputation on Wall Street right now. On Tuesday, Facebook shares hit a new record low of $17.55 down more than 50% on its IPO price of $38. This prompted Mark Zuckerberg to commit to not selling any of his shares for at least 12 months to try and steady the slide.
This is all coming as Facebook continues to grow and prepares to welcome its one billionth user. Zynga has suffered an even worse fate, losing more than 75% of its stock value since going public last December. Were these just two over-valued IPOs or evidence of a social media bubble that can’t survive post IPO?
The story of social media’s other big IPO would suggest that it is possible to have a successful social stock price. In contrast to the Facebook debacle, LinkedIn shares more than doubled on their first day of trading in May 2011. Shares opened at $83 on the New York Stock Exchange (NYSE) up from the IPO price of $45 and by the end of the day had risen to $94.27. Prices wobbled a couple of times since dropping into the sixties but since January the stock has seen a relatively steady rise and is now trading above the $110 mark.
Google prices are also having a good year following impressive quarterly results. The search giant’s stock price is up over the $680 dollar mark and approaching its all-time high price of $747 reached in November 2007 before the recession hit. In fact, the tech industry overall is performing well and the NASDAQ is up more than 20% in the year to date.
Have Zynga and Facebook hit a bottom?
So are Zynga and Facebook just victims of overpriced IPOs and bound to recover as the market eventually trends upwards? Not necessarily, according to some experts who believe their prices could fall even further. After all, Groupon which went public in November 2011 has lost 83% of its initial value and continues to fall daily.
Much of Facebook’s slide is being attributed to its inability to find new revenue streams from mobile and not much of that has changed since IPO. Despite Zuckerberg’s promise to keep his shares, many of his fellow Facebookers are likely to sell over the next few months. The lockup period which prevented early investors from selling stock has recently expired and many shareholders will likely try to sell part, or all, of their 271 million unlocked shares rather than wait for the stock to recover. Zynga’s reliance on Facebook to attract users to its social games does not make it an attractive buy either. FarmVille, CityVille, and CastleVille lost more than 20% of their participants since Facebook’s new timeline was introduced because according to Zynga it is now more difficult for users to find the games.
The next IPO?
So not all social media IPOs are a disaster but they don’t have a great track record. The Facebook disaster may have delayed a few companies from going public and you can’t really blame them. However, according to the Securities and Exchange Commission (SEC) in the US, once a private company reaches 500 shareholders the firm must adhere to the same financial disclosure requirements that public companies do, so Twitter may well have its hand forced in 2013. It’ll be interesting to see if it can buck the jittery IPO trend or will even bother with an IPO at all.
