Facebook IPO: Big Volume, But Little to Show For It

Facebook set a record for volume on its first day of trading, but the stock otherwise failed to live up to all the hype and posted just a modest gain for the day.

A Facebook Inc. IPO announcement flag flies outside of JPMorgan Chase & Co. headquarters in New York.
Peter Folley | Bloomberg | Getty Images
A Facebook Inc. IPO announcement flag flies outside of JPMorgan Chase & Co. headquarters in New York.

After an attention-grabbing half-hour delay to start its initial public offering, Facebook shares opened at $38, surged as much as 11 percent during the day, but ultimately finished just above unchanged after hitting an intraday high of $45.

Late in the trading day the stock threatened to hit negative numbers, vacillating around unchanged as underwriters put up a vigorous fight to defend the breakeven point.

The lackluster performance was both a testament to good pricing and a bit of an embarrassment for a company that was supposed to wow Wall Street on its opening day.

And after the market close the SEC said it would be looking into apparent hiccups in the trading execution of Facebook shares on Nasdaq.

"I thought it was going to open at $48 and trade up around there," said Michael Cohn, chief market strategist at Atlantis Asset Management in New York.

Noting the "furor was a little out of control," Cohn said he heard stories attributing the market's recent meltdown to investors selling other shares so they would have money to buy Facebook.

The company started in a Harvard dorm room and became, with Friday's trading, a more than $100 billion behemoth.


The stock stumbled around in the opening minutes as sell-order backlogs hit the share price. Conversely, big underwriters such as Morgan Stanleyand others seemed to support the price once it hit the breakeven level.

Overall, Facebook's inability to make a clean break to a significantly higher upside surprised some market pros. Shares traded below $40 in the final hour.

Some 82 million shares changed hands in the first 30 seconds and volume passed 100 million after four minutes.

Eventually, the offering surpassed the volume record set by General Motors .

The opening was marred by a lengthy delay that had traders dumbfounded as to how one of the largest IPOs in history could have been mishandled. Traders apparently had trouble changing or canceling orders ahead of the offering, according to the Wall Street Journal.

Nasdaq officials told members it was "investigating an issue in delivering trade execution messages," the Journal reported.

As for Facebook, the price eventually moved above $40 though it had been expected to head much higher before the trading day ended.

Of 17 previous IPOs to price above their initial ranges, they posted first-day gains on average of 45 percent, according to Dealogic.

But the stock struggled as some of its peers got socked.

Zynga , a fellow social networking side focused on games that appear on the Facebook site, saw its stock plunge more than 12 percent, triggering circuit breakers that halted trading. LinkedIn, a networking site for professionals, also fell sharply. Chinese social networking site Renren got pounded as well.

Advisors had been cautioning clients to avoid diving into the Facebook stock on the first day due to expected volatility, but money poured in anyway.

Still, expectations remained generally high overall that the company would be able to take its place among the titans of the tech space.

"Overall we're very positive on the Internet space at large. We do like the growth prospects that Facebook has," Chris Baggini, of the Turner Titan Fund, said in an interview on CNBC's "Power Lunch" program in which he compared the company's future prospects to search engine leader Google.

Facebook has "a very big opportunity set ahead of them because their monetization, the amount that they actually earn per user, is actually quite low. There's only upside to what they've been able to generate so far."

The Facebook IPOpriced at the high end of the expected range of $34 to $38 a share, even though most companies like to keep their offering price low to lure in more buyers. The initial range was $28 to $35.

Trading was supposed to begin at 11 am on the Nasdaq, the platform that hosts many of the country's top tech companies.

However, technical problems delayed the opening, causing murmurs on Twitter and around trading floors.

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Facebook, the brainchild of mercurial founder Mark Zuckerbergand several Harvard classmates, debuted with fanfare that included Zuckerberg ringing the opening bell amid a swarm of cheering employees and supporters, as well as a massive media presence.

Not everyone, though, was as enthusiastic.

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"We really don't care a whit about Facebook or Mark Zuckerberg or the rest of his young hoodie-wearing employees," hedge fund manager Dennis Gartman wrote in The Gartman Letter Friday morning. "The world does not revolve around Facebook; never has and really never will."

The debut was of no help to the broader stock market, which struggled amid the escalation of the European sovereign debt crisis and uncertainty about the economic future in the U.S.

The offering is the third largest U.S. IPO on record and the largest ever for the Nasdaq. Eventually it could rise to the second-largest ever, trailing only the Visa offering.