Facebook’s IPO was not quite what anyone expected, quickly going from the most watched public offering this year to a lawsuit by shareholders for concealing weakened growth forecasts. Defendants including Facebook CEO Mark Zuckerberg and Morgan Stanley were cited as hiding “a severe and pronounced reduction” in revenue forecasts during the IPO marketing process.
One of the suits in New York says that lowered business forecasts were “selectively disclosed by defendants to certain preferred investors” and not to the general public. While it was generally known there would be challenges, Facebook shares fell 18.4 percent from the $38 IPO price in the first three days of trading, reducing the value of stock sold in the IPO by more than $2.9 billion.
“The I.P.O. of Facebook was supposed to be Morgan Stanley’s crowning achievement, but it is turning out to be a big embarrassment, raising broader questions from regulators about the I.P.O. process,” notes the New York Times. “When the dust settles, Morgan Stanley could make more than $100 million in fees on the I.P.O. But rival bankers and big investors have complained that Morgan Stanley botched the debut. They contend that the bank set the price too high and sold too many shares to the public.”
“The media are awash in stories about Facebook’s IPO ‘failure’ because the stock price hasn’t skyrocketed and made the buyers incomprehensibly rich. It only has made the original shareholders filthy rich,” said Ad Age’s Jonathan Salem Baskin. “I think every CMO should ruminate on the more nuanced questions about the value of social engagement that the IPO event raises.”
“Facebook’s sole function is engagement. It connects people with one another. Its $3 billion in revenue and $1 billion profit come from advertisers who believe that there must be ways for brands to profit from that engagement. They don’t know how to do it yet. The two hypotheses they’re testing are putting ads around it, and trying to actually host some of it via branded pages interspersed with people pages,” added Baskin. “There’s no evidence that either yields much beyond nice-to-have benefit, and some experimenters (most recently GM) have given up trying, for now. Again, since Facebook makes money either way, I’d take a small piece of such failure and consider my life’s work a success.”
Meanwhile, Facebook is continuing its usual business by adding Angry Birds, tweaking Timeline and adding a new “Summary” section. They’ve announced a branded entertainment deal with Turner’s TBS to promote three- to five-minute comedy “shorts” developed by DumbDumb, Arrested Development co-stars and pals Will Arnett and Jason Bateman’s digital entertainment company.
“In our mind,” stated Carolyn Everson, Facebook’s head of ad sales and VP of global marketing solutions, “we believe that we should capitalize on the social footprint in and around the media content that consumers love and that they consume on Facebook.”
Still the honeymoon might be over for Facebook. “There is a stigma around a broken deal, and Facebook is a broken deal,” Connor Browne, a managing director for Thornburg Investment Management.
Source: Brand Channel