Facebook fails to set stock market alight

Social-networking phenomenon valued at $104bn on closely watched debut, but shares settle back to $38 opening price.

Facebook, the world’s biggest social-networking site, has raised $16bn for itself in a highly anticipated stock market debut.

The social networking site floated 421 million shares of common stock at $38 in Friday’s initial public offering (IPO), valuing the company at $104bn and making it the third-biggest public offering in US history.

Just after the offering, which was delayed by a half-hour, the stock jumped to $42.05 in the opening trades. But the company’s new stock closed barely higher than its opening price at $38.15.

“The negativity in the market overall has put a damper on the IPO,” said Darren Hayes, a Pace University professor.

“It’s not uncommon in an IPO to see a big rise and then for the price to come back down, but I’m a bit surprised after all the hype.”

More than 500 million shares exchanged hands, setting a US record for volume on the same day of an IPO.

‘Mark listed FB’

From a student dormitory at Harvard to plush headquarters in Silicon Valley, Facebook – now the world’s second-most-visited website – has grown rapidly since its founding in 2004 by Mark Zuckerberg.

Wearing his trademark hoodie and standing before a huge crowd in Menlo Park, California, Zuckerberg remotely opened trading this morning on the NASDAQ Stock Market.

“With 1,000 other Facebook employees, Zuckerberg had an all-night code-a-thon,” Al Jazeera’s Scott Heidler reported from New York.

Zuckerberg rings NASDAQ opening bell from Menlo Park [Reuters]

On Zuckerberg’s own Facebook page, under recent activity, was this status update posted shortly after 9:30am EDT: “Mark listed FB on NASDAQ”.

A number of internet companies have launched IPOs over the past year, including Yelp, Groupon, Zynga, Pandora, Renren, and LinkedIn.

But the size of the Facebook offering dwarfs those of its peers.

The Facebook offering price implied a valuation about the same size as blue-chip giants such as PepsiCo, Visa, and McDonald’s, and far bigger than computer companies Dell and Hewlett-Packard.

Apple co-founder Steve Wozniak recently added to the hype, saying that he planned to buy Facebook stock, no matter how high the price.

According to official estimates, the IPO had been expected to make a windfall of about $2.1bn for California, whose governor just this week proposed a series of spending cuts to help cut its deficit.


Some analysts raise concerns, however, that Facebook was overvalued.

“This is much more a spectacle, a media event and a cultural moment than it is an IPO,” Max Wolff, an analyst at GreenCrest Capital, said. “This is not a game of models and fundamentals at this point.”

Most of Facebook’s revenue currently comes from advertising, though investors hope that the company may find other ways of making money from its 900 million users.

With 157 million members, the US has the most Facebook users. Brazil recently jumped to second place with 47 million, followed by India with 45.8 million, Indonesia with 42.2 million and Mexico with 33.1 million.

Facebook is the most popular social network in every country of the world, with the exceptions of China, Japan, Russia, South Korea and Vietnam.

Facebook says it had an average of 526 million daily active users in March 2012, an increase of 41 per cent from a year ago. It had registered 125 billion “friend connections” as of March 31 and 3.2 billion “likes” and comments. More than 300 million photos are uploaded to Facebook every day.

“Now that it’s public, we’ll start seeing what the results are,” Kevin Anderson, a technology journalist, told Al Jazeera.

“Facebook is actually making money, but the expectation is that it will make a lot more in the future. It’s in a league of its own.”

In 2011, Facebook made $4.34 per user in advertising – which is higher than in previous years, but nowhere near the $30 per user per year that Google makes.

On Tuesday, General Motors announced that it planned to stop advertising on the website, claiming the $10m it had spent on ads had been ineffective.

Privacy concerns

The IPO is also calling attention to Facebook’s privacy policies. The website has drawn criticism for its sometimes opaque and frequently shifting policies regarding users’ data.

A German data protection official recently warned Facebook investors that the social networking site’s starting share price was based on practices that breach European privacy rules.

Thilo Weichert, data protection commissioner for the northern German state of Schleswig-Holstein, says shareholders should be aware that if European privacy authorities have their way, “Facebook’s business model will implode”. 

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In 2010, the Wall Street Journal found that some applications on the site were transmitting user IDs to advertising companies – enabling them to look up users’ real names, regardless of their privacy settings.

And since last year, Facebook has been using facial recognition technology to allow users to automatically tag others in uploaded pictures.

“The story from day one for Facebook has been trying to figure out how to monetise the value of the users while showing some respect for privacy,” Marc Rotenberg, executive director of the Electronic Privacy Information Centre, told Al Jazeera.

“Given the choice between extracting more commercial value or respecting the privacy settings of users, Facebook takes option one.”

A poll recently conducted by the Associated Press news agency and CNBC found that just 13 per cent of US adults trust Facebook “completely” or “a lot” to keep their information private.

Source: Al Jazeera, News Agencies