The technology company Facebook, Inc., now known as Meta Platforms, held its initial public offering (IPO) on Friday, May 18, 2012, with shares trading on Nasdaq under the ticker symbol FB. The IPO was one of the biggest in technology and Internet history, with a peak market capitalization of over $104 billion.

Context

For years, Facebook and Mark Zuckerberg, its co-founder and CEO, resisted both buyouts and taking the company public. The main reason that the company decided to go public is because it crossed the threshold of 500 shareholders, according to Reuters financial blogger Felix Salmon.Felix Salmon, "Facebook: The smart money exits," Reuters, May 16, 2012. Salmon writes that the reason it had more than 500 shareholders is because "early investors, including Accel and DST, have been selling down their stakes in private markets for some years now."

Facebook reportedly turned down a $750 million offer from Viacom in 2006.WebPorNews Staff, Facebook Sees $25M From Greylock , April 19, 2006 That same year, Yahoo! attempted to buy the company for $1 billion but Zuckerberg refused. Also that year, BusinessWeek reported a $2 billion valuation for the company.Steve Rosenbush and Timothy J. Mullaney, Social Networking's Gold Rush, April 18, 2006.

Facebook did accept investments from companies, and these investments suggested fluctuating valuations for the firm. In 2007 Microsoft beat out Google to purchase a 1.6% stake for $240 million, giving Facebook a notional value of $15 billion at the time.Associated Press, Microsoft invests $240 million in Facebook, October 24, 2007 Microsoft purchased preferred stock, which meant that the company's actual valuation would be considerably lower than $15 billion.Ina Fried, Microsoft and Facebook: The $240 million poke, October 24, 2007. Meanwhile, that valuation dropped to $10 billion in 2009, when Digital Sky Technologies bought a nearly 2% stake for $200 millionIna Fried, Facebook investment puts spotlight on Microsoft stake, May 26, 2009. – a larger stake than Microsoft had purchased at a lower price. An investment report in 2011 valued the company at $50 billion.Susanne Craig and Andrew Ross Sorkin, Goldman Offering Clients a Chance to Invest in Facebook, January 2, 2011.

Zuckerberg wanted to wait to conduct an initial public offering, saying in 2010 that "we are definitely in no rush." However, since 2012 Facebook had more than 500 round lot (over 100 shares) stockholders, Facebook was subject to the SEC disclosure rules starting the next year, 2013. Zuckerberg had little choice as to whether an IPO had to be done at once.

Preparation Filing and roadshow Facebook filed for an initial public offering on February 1, 2012, by filing their S1 document with the Securities and Exchange Commission (SEC). The preliminary prospectus announced that the company had 845 million active monthly users and that its website featured 2.7 billion daily likes and comments. The filing noted that the company's increases in membership, as well as its incomes, were slowing and that the deceleration was likely to continue.

To ensure that early investors would retain control of the company, Facebook in 2009 instituted a dual-class stock structure. After the IPO, Zuckerberg was to retain a 22% ownership share in Facebook and was to own 57% of the voting shares. The document also stated that the company was seeking to raise 5 billion, which would make it one of the largest IPOs in tech history and the biggest in Internet history.

The roadshow faced a "rough start" initially. Zuckerberg raised controversy for wearing a hoodie (rather than a customary business suit) to the first meeting with investors. Wedbush Securities analyst Michael Pachter called it a "mark of immaturity." A half-hour-long video played during that meeting also frustrated investors who wanted to discuss more technical details, and was dropped for future meetings.

Valuation

Prior to the official valuation, the target price of the stock steadily increased. In early May, the company was aiming for a valuation somewhere from $28 to $35 per share ($77 billion to $96 billion). On May 14, it raised the targets from $34 to $38 per share. Some investors even suggested a $40 valuation, although a dip in the stock market on the day before the IPO ended such speculation.

Strong demand, especially from retail investors, suggested Facebook could choose a relatively high offering price. Ultimately underwriters settled on a price of $38 per share, at the top of its target range. This price valued the company at $104 billion, the largest valuation to date for a newly public company.

On May 16, two days before the IPO, Facebook announced that it would sell 25% more shares than originally planned due to high demand. This increased the total number of shares to be sold at the IPO to 421 million.

The Facebook IPO brought inevitable comparisons with other technology company offerings. Some investors expressed keen interest in Facebook because they felt they had missed out on the massive gains Google saw in the wake of its IPO. LinkedIn stock, meanwhile, had doubled on its first day.

At $26.81 per share, which Facebook closed at a week after its IPO, Facebook was valued like "an ultra-growth company," according to Robert Leclerc of the Financial Post. Its PE ratio was 85, despite a decline in both earnings and revenue in the first quarter of 2012.Robert Leclerc, "Overvaluing Facebook", Financial Post, June. 7, 2012.

A number of commentators argued retrospectively that Facebook had been heavily overvalued because of an illiquid private market on SecondMarket, where trades of stock were minimal and thus pricing unstable. Facebook's aggregate valuation went up from January 2011 to April 2012, before plummeting after the IPO in May – but this was in a largely illiquid market, with less than 120 trades each quarter during 2010 and 2011. "Valuations in the private market are going to make it 'difficult to go public'", according to Mary Meeker, an American venture capitalist and former Wall Street securities analyst.Felix Salmon, "Facebook's SecondMarket muppets," Reuters, May 30, 2012.

Price targets Prior to the IPO, several investors set price targets for the company. On May 14, before the offering price was announced, Sterne Agee analyst Arvind Bhatia pegged the company at $46 in an interview with The Street. The interviewer cautioned Bhatia against what she perceived as Bhatia's low valuation, suggesting the stock could rise to "60, 70, 80 dollars" and could shoot up to $60 on the first day of trading. On May 17, the day before the offering, analyst Jim Krapfel of Morningstar suggested that only a 50% or better increase on the first day would be seen positively; "anything under that would be underwhelming." Lee Simmons of Dun & Bradstreet predicted more modest first-day gains, in the range of 10 to 20%. No analysts Reuters interviewed projected a first-day decrease. Others were less optimistic. Much of Wall Street expressed concerns over what it saw as a high valuation. Citing the price-to-earnings ratio of 108 for 2011, critics stated that the company would have to undergo "almost ridiculous financial growth [for the valuation] to make sense." Other companies trade at far lower ratios, although there are notable exceptions. Writers at TechCrunch expressed similar skepticism, stating, "That's a big multiple to live up to, and [Facebook] will likely need to add bold new revenue streams to justify the mammoth valuation".

Early investors themselves were said to express similar skepticism. Warning signs before the IPO indicated that several such investors were interested in selling their shares of the company. Accel Partners planned to offload as many as 28% of their shares, while Goldman Sachs was ready to sell up to 50% of theirs. Rolfe Winkler of the Wall Street Journal suggested that, given insider worries, the public should avoid snapping up the stock. Facebook employees were less concerned, with Mark Zuckerberg planning to sell just 6%.

Analysis of fundamentals Striking an optimistic tone, The New York Times predicted that the offering would overcome questions about Facebook's difficulties in attracting advertisers to transform the company into a "must-own stock". Jimmy Lee of JPMorgan Chase described it as "the next great blue-chip".

Some analysts expressed concern over Facebook's revenue model; namely, its advertising practices. Brian Wieser of Pivotal Research Group argued that, "Although Facebook is very promising, it's an unproven ad model." To better monetize user involvement, the company could improve advertising. Yet such efforts could undermine user privacy. Also, some advertisers expressed concern over the value of the advertisements they purchased on Facebook. General Motors announced it would pull its $10 million campaign from the social network just days before the IPO. The automobile company asked for "bigger, flashier" advertisements but Facebook refused.

Public trading In the immediate build-up to the offering, public interest swelled. Some said it is "as much a cultural phenomenon as it is a business story." Meanwhile, Facebook itself celebrated the occasion with an all-night "hackathon" on the night before the IPO. Zuckerberg rang a bell from Hacker Square on Facebook campus in Menlo Park, California, to announce the offering, as is customary for CEOs on the day their companies go public.

First day

Trading was to begin at 11:00am Eastern Time on Friday, May 18, 2012. However, trading was delayed until 11:30am Eastern Time due to technical problems with the NASDAQ exchange. Those early jitters would foretell ongoing problems; the first day of trading was marred by numerous technical glitches that prevented orders from going through,Tepid honeymoon of facebook and nasdaq does not deliver the big bang. Forbes or even confused investors as to whether or not their orders were successful.

Initial trading saw the stock shoot up to as much as $45. Yet the early rally was unsustainable. The stock struggled to stay above the IPO price for most of the day, forcing underwriters to buy back shares to support the price. Only the aforementioned technical glitches and underwriter support prevented the stock price from falling below the IPO price on the first day of trading.

At closing bell, shares were valued at $38.23, only $0.23 above the IPO price and down $3.82 from the opening bell value. The opening was widely described by the financial press as a disappointment.

Despite technical problems and a relatively low closing value, the stock set a new record for trading volume of an IPO (460 million shares). The IPO also ended up raising $16 billion, making it the third largest in U.S. history (just ahead of AT&T Wireless and behind only General Motors and Visa Inc.). The stock price left the company with a higher market capitalization than all but a few U.S. corporations – surpassing heavyweights such as Amazon.com, McDonald's, Disney, and Kraft Foods – and made Zuckerberg's stock worth $19 billion.

Subsequent days