Facebook Won't Open IPO Flood Gates

Whether Facebook’s IPO occurs on Friday, May 18 or is delayed is still yet to be seen.  As of the morning of Saturday, May 12, MarketWatch was reporting that the company was still awaiting approval of its latest S-1.  I expect they’ll be able to debut as a public company on the much-reported May 18 date, but we’ll know for certain in a few days.

Either way, I have no doubt Facebook will be a public company soon.  I’ll also be surprised if it doesn’t top expectations.  If this happens, we need to remember short-term market growth doesn’t equal long-term success.

Groupon is a recent example of this.  On its first day of trading, Groupon was up more than 31%.  It closed at $26.11 per share.  On Friday, May 11, it closed at $9.90.  Even if their pre-IPO hype hadn’t existed, the current trading rate would be disappointing. 

Just as Groupon was expected to be, Facebook is now the new company to be heralded as the IPO market starter.  Despite what some people believe, a good performance from Facebook doesn’t mean the market will soon be flooded with companies going public.   For all its faults, Facebook has been able to show consistent growth in users and revenue.  Yes, it still has to develop additional sustainable revenue streams, but it is at the point in its history where a public offering is warranted. 

We aren’t in 2000 anymore and I tell myself today’s market won’t accept ridiculously underperforming companies going public as they did before that bubble popped.  I may be very wrong, but I’ll continue to cling to this belief. 

In February 2000, Pets.com raised $82.5 million in a less than stellar IPO; nine months later it collapsed.  Webvan’s IPO and collapse was even more spectacular with $375 million raised in a November 1999 IPO before it died in 2001. 

Of course, the one I still personally mourn is the downfall of Kozmo.com.  I knew at the time it was too good to be true – movies, Ben and Jerry’s ice cream, Krispy Kreme donuts, and just about anything else you wanted, at your door in an hour or less.  Unfortunately, Kozmo.com only introduced minimum order requirements a few months before it officially died.  That means the dozen Krispy Kreme donuts I had delivered to my hotel room in NYC, which was delivered by a man who was probably paid $10 an hour, actually cost the company a few bucks.  Yes, I loved the concept and I helped contribute to its downfall.

So, although there will be more IPOs to come in 2012, it will not be the flood some are anticipating.  In the end, the market and those of us doing business in it will be much better off.  

 

Comments

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Hi Kris, love your thoughts and i definitely agree with you, In the end, the market and those of us doing business in it will be much better off.

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