Back in the late 2000’s, two of my favorite things decided to go public and release shares of their stock and it coincided perfectly with my first foray into the stock market. They seemed like an unlikely pair but professional wrestling monopoly WWE and homemaker extraordinaire Martha Stewart were going to be my meal ticket out of this dump. Things looked good after day one of trading, with the WWE stock doubling but that is when I should have got out of the game. Starting in day 2 and continuing until today, the WWE stock has body slammed my wallet. That’s not even mentioning the Martha Stewart stock as even she sold of her shares and was forced to do some prison time, trading roast chicken brisquet for hard boiled eggs and bologna sandwiches. The latest company who I was really familiar with to go public was Facebook…would I learn from my mishaps to finally find financial success?
Facebook Going Public Background
Facebook was built from the ground up by a small group of dedicated employees and trusting investors. The company took chances and built their site for a personal experience. As time went on, virtually everybody you knew was ‘on Facebook’ and ones that said they’d never go on soon buckled to the pressure and were flooding your newsfeed like everybody else. As the company and site grew, news trickled out about young Facebook developer Mark Zuckerberg’s multi-million dollar net worth and Hollywood even made a movie about the social networking giant. Many companies that experience profound success, like WWE or Martha Stewart, are faced with the decision to go public and in 2012; Facebook also was at a crossroad.
The decision of Facebook to go public wasn’t necessarily made by Zuckerberg himself; in fact he helped to put off the move for years. When a company starts showing crazy profit numbers like Facebook did on its rise to the top and had over 500 investors as the company also did, eventually various trade commissions want to start seeing full disclosure on budget numbers. Facebook was more or less forced to release their shares, which has its pros and cons.
The IPO of Facebook (Initial Public Offering) was in the range of $34-$38, which traders gobbled up and made the company millions of dollars in a single day. Normally, this would be considered a positive for a corporation but Facebook going public brought with it new issues that the company had never faced. First off, Facebook wanted to reward the small core of workers who had contributed to the company’s early success and they received a large chunk of stock options as a sort of bonus package. Unfortunately, laws prohibited those employees from selling the stock while employed so instead of sitting on these shares, the workers simply quit, sold the stock, went to the West Indies to retire, and left Facebook searching for a new core of employees to replaced the experienced crop that had just left. The WWE went through a similar change went they went public back in 2000 as the One Man Gang traded in his stock options.
Answer to Shareholders
Another issue that arises when Facebook went public was there were more people to answer to. One of the things that helped Facebook rise to the top was their gambler’s edge in which they took bold chances, which luckily paid off. Having to answer to shareholders means they have a say in how things move forward and likely lack the technical know-how to see how a certain move will pay off in the future. Now, Facebook has less flexibility to gobble up small start-ups like Instagram because shareholders would have to approve the purchase. Compounding that, shareholders also want quarterly reports on growth potential so in effect they’re saying don’t spend money but build your company. It’s like telling Martha Stewart to bake a delicious brisket but only giving her baking soda and seasoned salt.
Facebook going public also unfortunately coincided with the popularity of the site waning. More people than ever are on Facebook but the average time spent on the sight per user is in a freefall. Whereas people used to sit on the timeline all day and hit refresh, now they visit once in the morning and once at night and go on with their day. Like all ventures, the newness of Facebook has essentially worn off, which is horrible timing for somebody who now has thousands of shareholders to answer to.
The stress and bleak-for-the-moment future of Facebook caught up to it quickly on Wall Street. The shares that opened at $34 quickly rose up to a peak of $42 but soon entered a spiral to the mere $24 that it stands at today. Zuckerberg was smart; he sold his shares early but had a good excuse…after all he now had a wife to answer to which was much more intimidating than the trade commission. The low performing shares are a culmination of all the above factors coming to a head and experts say the IPO should’ve opened lower so it could’ve grown slowly. Either way, the future of the company lies in Zuckerberg’s brain and if there were anybody you’d want to bet on it’d be the technology icon…or Rowdy Roddy Piper in a cage match against Martha Stewart.