From the moment U.S. markets opened on Friday, it was an ominous start as a public company for social media darling Facebook (NASDAQ: FB). In what was the most anticipated technology sector IPO since Google's (NASDAQ: GOOG) in 2004, Facebook raised $16 billion and closed the day with market cap of almost $105 billion, making it more valuable on that basis than half of the companies in the Dow Jones Industrial Average.
There end the high points. Technical glitches prevented the Nasdaq from processing hundreds, maybe thousands of orders for Facebook shares, but that was just one problem. After briefly running to $45 from the $38 debut price, the stock trended lower and wound up closing at $38.23.
More alarming than the fact that Facebook gained only 23 cents in its first trading day, far less than some other marquee IPOs in the past year that didn't have nearly the expectations that Facebook had, is the amount of effort it took to keep the stock above $38. Underwriters of the IPO such as Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE: GS) and others squandered most if not all of the $176 million in fees they split for taking Facebook public supporting the stock at $38.
In other words, perhaps the two key takeaways from Facebook's first day of trading are as follows: This may have been not only a highly anticipated, but highly disappointing IPO, but at least technical analysts now know that $38 is the line in the sand for a stock that is only one day old. Remember, folks keep comparing Facebook to Google, but Google rose 18% in its first day of trading. Facebook was up less than 1%.
Making matters worse for Facebook is a lockup period that expires in three months. Meaning the market will be awash in insider selling as the company's newly minted paper millionaires look to translate that paper wealth to real wealth. On that front, the stock will need index and mutual fund buying to support it and at least in the case of mutual funds, there are no guarantees they will come to the Facebook table. After all, it was week institutional buying that was seen as a key reason the IPO was not as strong as expected.
Perhaps one source of encouragement for Facebook is that the stock was up 3% in Friday's after-hours session. Another case of a silver lining for Facebook is that LinkedIn (NYSE: LNKD), itself a social media darling, saw its shares weaken considerably in the days immediately following their debut, but the stock has since come roaring back.
In Facebook's defense, it does have more than 900 million users it will attempt to monetize and it's one of the most trafficked sites on the Web. Those fundamentals should kick in at some point. At least that's what the early buyers of Facebook's stock are hoping.