Editor’s note: This article was first published in May 2012. This first-person account covers Facebook’s first trading day, 18 May 2012. The valuation of over 104 billion dollars, the fall in advertising revenue compared with 2011 and Bloomberg’s projection for 2020 refer to that time. Facebook now trades as Meta Platforms.
Now that the big event of Facebook’s IPO is over, leaving its bad aftertaste, I want to share how I lived that day. A day on which I once again made several mistakes, as I imagine thousands of retail investors around the world did too. We knew anything could happen at the social network’s stock market debut, so any figure at the close was possible.
The truth is that a few weeks ago, when Zuckerberg announced the increase in the price range from 28–35 dollars to 34–38, I was already a bit put off. When we learned that the final offering price would be at the top of the new range (38 dollars), I was even more discouraged because, as Dan Veru, chief investment officer at Palisade Capital Management, had said, it would be much better to come out at a low price and let the secondary market give the stock a push upwards. Still, in the end you refuse to miss out on an event like this; it would be like a football fan missing a World Cup final.
So on Friday afternoon I ordered a coffee to go and got ready for the big event.
15:50 (Spanish time)
I sent a buy order for 250 shares with a maximum limit of 40 dollars a share, on the assumption that the opening price would be 38 dollars. I allowed for the possibility that, with so much demand and so many trades crossing in the market, my order might not get filled and I’d be left out. Of course, I wasn’t willing to pay much more for something that could end up even worse than it did.
Between 16:00 and 16:30
A conference call with investor friends in Madrid, answering some questions by email and swapping information about the IPO with others. At the same time, following the conversations on Twitter.
Following the latest developments on the Wall Street Journal and Bloomberg. We looked for a way to watch the share price in real time on Google Finance. In short: totally wired and, at the same time, like a kid at an amusement park 🙂
Between 16:30 and 17:00
I start getting reports of errors on some Spanish trading platforms. Some people got a message saying that any order sent to the market before Facebook’s debut would be cancelled. Others simply couldn’t trade on international markets from their platform, so I even began to wonder whether my order was any use, although my platform showed it as active and sent to the exchange.
Rumours start coming in that, given the strong demand, the opening price might be 42 dollars instead of 38.
17:00
They announce that Facebook is delayed and will take a while to start trading. It’s no longer a rumour: the opening price won’t be 38 dollars but 42.
So my buy order is now out of date: if the price shoots straight up I’ll be left out. But I wasn’t willing to buy shares above 42 dollars, so I cancelled the order. Then rumours began that it might open at 44 dollars, so I no longer felt like getting into Facebook.
The event began, and so did the mistakes.
Facebook was running late, my market order had been cancelled and, before I knew it, the stock had started trading and was above 43 dollars and rising. The party had clearly started without me. I was out, and Facebook would probably meet expectations and end the day more than 30% up.
In less than two minutes the price suddenly dropped to 38 dollars, so I quickly entered a new buy order with a limit of 38.50 dollars. Just as I finished sending it, Facebook started climbing again above 39 dollars, heading back towards 42, so once again my buy order looked very likely to be useless.
The price then settled between 40 and 41 dollars. Too quiet for what had been expected, although (logically) it was very unlikely that Facebook would drop back to 38.50.
After a few hours watching from the sidelines, I decided to modify the order again and change the limit to 39.50 dollars, which, though unlikely, could be reached if another “big fish” sold out or there was a mass exodus of investors.
It looked as if I wouldn’t get into Facebook after all, so imagine my surprise when I saw that the order had been filled. I nearly jumped for joy, a joy that was short-lived when I saw the price had gone into a tailspin again towards the offering price. We knew the underwriters would stop the stock from falling below 38, so there was a chance of another rebound.
The rebound as such never came, although in the final stretch of the session Facebook managed that 0.61% return, and I managed a return of -3.21%.
First of all, I think I’ll remember 2012 as my worst year when it comes to decision-making, at least in the short term, because I’m counting on things evening out into a positive return in the long run.
Patience matters. Clearly, had I kept the order at 38.50, it would eventually have been filled and, even without a positive return, the result would have been somewhat better.
As for my investment portfolio, I now have another long-term holding. Can Facebook show that it can create value? With advertising revenue down compared with 2011, will it manage to grow it? Will it finally prove that it’s worth the more than 104 billion dollars the market has valued it at? We’ll find out one day, no doubt, though for now Facebook is valued at 107 times its annual earnings.
According to Bloomberg, for the social network to meet growth expectations the way Google has been doing, Facebook would need to be worth 920 billion dollars by 2020. Where will the social network be in 2020? Will it end up as Bubble 2.0?
As Warren Buffett has said, Coca-Cola will still be around in 10 years, but Google and Facebook get a question mark because he can’t place them in the market a decade from now.
Featured image: Amin, CC BY-SA 4.0, via Wikimedia Commons.
