You Know What's Not So Cool? No Big Pop For Facebook's IPO

By Robert Hof

After a long wait for Facebook shares to start trading today, ticker symbol FB initially leaped past the $38 a share the company set last night for its initial public offering. Shares opened shortly after 11:30 a.m. Eastern at $42 a share, up about 10%. That made Facebook worth $118 billion, more than any other newly public company.

But shortly after the opening, shares slumped back toward $40, up only 5%, then headed further back to $39. And there are still hours left to go before the market closes.

The lack of a big pop doesn't affect the $16 billion-plus that Facebook raised in the IPO. Indeed, if shares close only a bit above $38, that means Facebook got almost every bit of the money it could get from the IPO, leaving little on the table for investors looking for a quick profit. As Benchmark Capital venture capitalist Bill Gurley noted in a tweet: "Well-executed IPO by both the mgmt team and i-banks. Media loves "POP," but "POP" cost company $$ and increases LT risk."

But IPOs aren't just about raising money. They are a publicity event intended to cement a company's arrival as a solid corporate citizen and, at least when it comes to technology companies, a growth stock. A first-day pop, even a relatively small one, often provides a signal that a company is indeed a hot commodity.

So the lack of a pop will have implications for the value of its stock as currency for acquisitions, and perhaps even more important, for other, if lesser, IPOs still to come. Underwriters and companies generally try to set prices so they leave room for a 10% to 20% jump at the opening.

The lack of sizzle in Facebook's IPO appears to be weighing on other Nasdaq stocks. Zynga, LinkedIn, Pandora, and  Groupon are all down.

The iconic IPO, the biggest since at least Google's in 2004, if not Netscape's in 1995, looks to rivet even more attention on Facebook.

But as CEO Mark Zuckerberg no doubt has told his employees, an IPO is not the end of a process, but the beginning of a new journey, one that many who have lived through them before will say is a much tougher one than the journey to get here. Facebook faces much more pressure now from investors to deliver on its promise to reinvent not only online advertising, but on Zuckerberg's promise to make the world more open and connected.

Investors may be cautious following the revelation this week that General Motors was dropping its Facebook advertising. While its $10 million ad budget was tiny next to Facebook's $3.8 billion in revenues last year, the move focused attention on doubts among some advertisers about how well the company's advertising works. They also may want more proof that Facebook can succeed in mobile advertising as more and more people access Facebook and other services via smartphones and tablets.

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