Facebook Flu? Why No Company Has Gone Public Since
Facebook's mammoth initial public offering on May 17 was supposed to serve as a shining example of American technological prowess in the open marketplace.
Instead, it seems to have reflected the nation's waning economic prospects, and actually presaged a sharp drop in companies going public.
Normally a strong time for IPOs , this June is on pace to be the worst in nine years, according to data from Dealogic, which said the month is usually the third-best of the year behind October and November.
But the Facebook flop of May has now turned into the Facebook flu for June, with only four deals expected to be priced in the U.S. before the end of the month and none since the social networking company's market debut. The average for June in the U.S. is 29.
EQT Midstream is expected to price June 26, while Exa Corp is on tap for the following day and Tesaro and ServiceNo will price on June 28. EQT is the largest of the group at just $250 million.
The total number of U.S. IPOs for the year is 106, down 39 percent from 2011.
While Facebook makes an easy target to blame for the IPO drop, economists say uncertainty around the world, particularly with the European debt crisisand the slowdown in the U.S., is discouraging new companies from coming to the publicly traded markets.
"What we're going through here is a highly uncertain period of time. Obviously, there are reasons why this is happening," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. "The global economy and, domestically, the election are impacting the IPO market more than any other issues."
Globally, the IPO picture is no better. Revenue paid to the investment banks that help usher through the offerings thus far stands at $1.8 billion, a 51 percent decrease from 2011, with Facebook making up $170 million of the total.
Facebook's debut was an unqualified disaster.
Trading opened a half-hour late due to glitches at the Nasdaq tradingsystem. While the stock did manage to eke out a first-day gain, it tumbled thereafter and hit an intraday low of $25.52 on June 6 before rebounding with the rest of the market as of late.
The confidence drop in the IPO market is tangible. A recent survey from the TABB Group showed that 46 percent of market participants believe that the IPO market will be affected by the Facebook failure for the next six months, while 39 percent said the damage will last two years.
The lack of confidence also is apparently weighing on investor sentiment, with respondents indicating that the impact will be nearly as great as the May 6, 2010 Flash Crash. That incident saw the Dow industrials fall nearly 1,000 points in a few minutes before recovering. Market volume has dropped 25 percent since the Flash Crash.
Calling Facebook "perhaps the most botched IPO in memory," Argus Research initiated its coverage on the company Thursday with a "hold" and a price target at $31.60, slightly ahead of Thursday's opening.
But it also offered a word of caution.
"After the travails of the past few weeks," analyst Joseph Bonner wrote, "we think that investors are in a 'show-me' mood and that management will need to execute extremely well in order to regain their confidence."
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