The Facebook IPO debacle has seen a growing circle of ramifications: underwriters facing investigation, Nasdaq’s technical implosion under scrutiny, disgruntled investors suing everyone in sight, and the company’s market cap having lost $40 bn in just two weeks.
Now there’s more fallout. Facebook’s problems touched off a chill in the IPO market.
Kayak Software, which runs the online travel site Kayak.com, has delayed its IPO, and Vodafone India is considering a delay, according to reports.
London jewelry company Graff Diamonds pulled its $1 bn offering this week – and Formula One called off its IPO. But it isn’t fair or wise to lay everything on Facebook’s doorstep.
Facebook’s problems, and the accompanying issues with such major underwriters as Morgan Stanley and Goldman Sachs, were more a last really heavy straw rather than the whole reason that companies and markets have become skittish.
The continued financial crisis in Europe has been an ongoing factor. Last fall, gaming company Zynga postponed its IPO because of both the US ratings downgrade and instability in Europe.
The IPO market had hardly been robust anyway, with money raised globally from initial offerings down 46 percent year over year.
In the US alone, proceeds were off by 53 percent if you don’t count Facebook’s big take. Hong Kong is down 85 percent, a bruising figure.
In other words, the markets were already hurting and the values companies can expect to see are dropping.
Facebook just underscores how transitory valuations can be. Private markets such as SecondMarket and SharesPost have also played their part. Reuter’s Felix Salmon argues that the private markets cause wealthy individuals to treat stocks like fine art objects.
The markets become ‘a place for the rich to spend lots of money and feel great about owning something very few other people can have’. In the process, they drive up valuations. Then, when the stock is commonly available, the value drops because anyone can own them.
Blaming Facebook is too easy and a retreat into wishful thinking. If it all were about Facebook, then things could return to normal sooner rather than later, once immediate bad feelings died out. But broader issues don’t vanish so readily.
