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Facebook Stock Drops: What Really Goes On In IPOs

Forbes - May 21, 2012

So by most accounts, the Facebook IPO is disappointing. Facebook’s stock ended its first day of trading a mere $0.23 above the deal price and today, Day 2, it has dropped more than 10% intraday. It was no accident it closed ever so slightly above the IPO price, but many investors don’t fully understand what is going on behind the scenes of an IPO, how banks might be betting against them, and the problems that arise when a stock trades below its IPO price.

So first things first: The Facebook IPO is only disappointing from a deal perspective – it is too early to pass judgment on whether it is a disappointment as an investment. Many great investments don’t have the most auspicious beginnings, while others might jump 50% on the first day of trading, only to flame out later. In other words, don’t judge the stock on one day of trading. The next Google or Apple rarely comes with the hype that they are the next Google or Apple. Facebook’s lack of a first-day trading pop creates a host of headaches for the dealmakers, funds that were looking for a quick profit, and perhaps some people at Facebook.

Read Full Article from Forbes

- Posted: 2012-05-21 11:12:43

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