Was Facebook The Biggest IPO Flop Ever?

By Clint Betts

December 16, 2020

Welcome to The CEO.com Show; my name is Clint Betts. This week, we’re continuing our series on Facebook. 

You’ve likely heard the story of the company’s founding. In 2003, Mark Zuckerberg created FaceMash, which was essentially a “hot or not” game for Harvard students.

Mark built Facebook next and it was no prank. It started at elite universities and then spread like wildfire. In 2004, venture capitalist Peter Thiel made a $500,000 angel investment for 10.2% of the company and a board seat — which he holds to this day.

By December 2005, Facebook had 6 million users. It was quickly becoming the most dominant social network in the world. By 2008 that title had been solidified, and in October of that year, Facebook announced it was setting up its international headquarters in Dublin, Ireland. 

It was only a matter of time until the company went public.

The company announced its intention to go public at the beginning of 2012. This was no ordinary Initial Public Offering. Facebook and its young founder had captured the imagination and attention of the world. The internet connected the human race in a way that had never happened before, making Facebook’s power and influence more obvious by the day. 

In particular, Facebook (alongside Google) had begun to decimate the revenue of corporate news and media organizations by making it easier and more profitable for companies to advertise on its platform rather than newspapers and cable news shows. More attention (and with it, more power) was being given to Facebook.

When a company announces its intention to go public, it goes on what’s called a “roadshow.” During this time, the company’s leaders meet with investors to try and convince them to purchase shares. Up until Facebook, this was usually done in person via a PowerPoint presentation. Facebook ditched the PowerPoint and instead made a video. Now nearly every company makes a video for their roadshow.

As the most scrutinized and hyped IPO in history up to that point, Facebook officially went public on May 18th, 2012. Most companies travel to New York to do this, but Nasdaq brought the opening ceremony to Facebook headquarters where Mark addressed his employees right before the company began trading at $38 per share.

It was a massive celebration for an already iconic American company and founder. But it didn’t last long, and things quickly turned rocky for Facebook in the days and weeks following the IPO.

Facebook’s stock remained volatile and the company was criticized for its decision to go public by some of the biggest names in the business world.

In 2013, The Atlantic wrote a piece titled “Facebook, One Year Later: What Really Happened in the Biggest IPO Flop Ever.” It examined the hoopla surrounding Facebook’s public offering and the variety of factors — namely a revised S-1 filing and the gap in information between institutional investors and retail investors  — that contributed to its drop. Within the article, a retired schoolteacher is profiled who ordered 5,000 shares of Facebook stock at $42 a share, only to watch it plummet over the course of the year to $26.25. Facebook’s market cap was $63 billion. As of this recording, that same stock is priced at $272 and Facebook’s market cap is nearly $775 billion, meaning 5,000 shares of Facebook stock today would be worth over $1.3 million. That school teacher, if she’d hung onto the stock until now, would’ve netted a nearly 650% return on her investment.

While the company has silenced its IPO critics by being worth far more than many — including most media outlets — thought was possible, the attacks on Facebook and its founder have increased. 

As have the stakes. 

The question is no longer whether Facebook is valuable. The question now is whether Facebook is too valuable and too powerful — with far too much influence on society. 

In addition to an antitrust lawsuit related to Facebook’s acquisition of Instagram and WhatsApp, which we’ll talk about later on in this series, Mark and his company are being pushed by politicians, the media, and many citizens, to censor more content published on its various platforms. And, in many cases, they’re being asked to determine the meaning of truth.