Facebook, Inc. (NASDAQ: FB) went public with its initial public offering (IPO) on May 18, 2012. With a peak market capitalization of over $500 billion, the social networking company had one of the largest and most anticipated IPOs in history.
- Facebook has become the dominant social media platform on the planet, with nearly 2.5 billion registered users.
- The company was founded in 2004, and went public via IPO on May 18 2012 with a share price of $38.
- The price dropped to under $18 a share early on before rising to where it is today, with a market cap of over half a trillion dollars.
Facebook's IPO Failed to Meet Expectations
With all of the hype surrounding the social media giant's IPO, expectations were sky-high. Almost immediately, it became apparent the results were going to be lower than expected. The stock fell right at opening, and share prices plummeted more than 40% over the next several months, with losses totaling $50 billion by August 2012.
Much of the lack of confidence in the stock came from within, as 57% of the shares sold in the IPO were from Facebook insiders. Another factor in the stock's falling price was the decision by General Motors to pull $10 million in advertising from Facebook due to ineffectiveness.
NASDAQ Glitch Costs Investors
Facebook's initial IPO price was raised just before going public to between $35 and $38, citing heavy demand. However, a glitch in NASDAQ’s electronic trading system delayed some investors from selling the stock on its first day of trading when the stock price fell. Investors stuck with huge losses sued, and NASDAQ eventually paid a $10 million fine over the botched IPO debacle.
In 2015, Facebook's heavy focus on its mobile platform helped the company's stock rise 30%. The social networking company joins Apple, Alphabet and Microsoft as the only other tech giants with a $300 billion market capitalization.
If You Would Have Invested in Facebook After Its IPO
Facebook made its long-awaited filing for an initial public offering with the Securities and Exchange Commission, or SEC, on Feb. 1, 2012. Prior to its initial public offering, Facebook Incorporated stated it had net income of $1 billion in 2011, which was an increase of 65% from 2010. The company also stated it had 845 million monthly active users and 483 million daily active users as of Dec. 31, 2011.
On May 18, 2012, Facebook held its initial public offering and, at that time, it was the largest technology IPO in U.S. history. Facebook offered 421,233,615 shares at a price of $38 per share and raised $16.007 billion through that offering.
Assuming you would have been able to purchase shares at $38, despite the offering being pervaded with trading issues, you would currently have 26 shares, or $1,000 divided by $38. As of July 24, 2015, shares of Facebook Incorporated closed at $96.95. In three years’ time, you would have a return on investment of 155.13%, or ($96.95 * 26 shares - $38 * 26 shares) / ($38 * 26 shares). As of July 24, 2015, that investment would be worth $2,520.70, or $96.95 * 26 shares.
However, Facebook did not staircase higher. Rather, the stock fell over $20 from the IPO price to $17.55 per share on Sept. 4, 2012. At this low, your return on investment would have been -53.82%, or ($17.55 * 26 shares) - ($38 * 26 shares) / ($38 * 26 shares). Some analysts and traders believe the company was overvalued and the IPO was priced too high, which led to the crash.
So, what if you had bought $1,000 of FB shares at its IPO and held on to it until today? With a share price of $188 as of October 25, 2019 your 26 shares that you paid $1,000 for would now be worth: $4,888 - gain of nearly 5x on the original investment.