Just over one year ago, Facebook, Inc. ($FB) filed for an Initial Public Offering (IPO). On May 18, 2012 public trading of the company’s stock began on NASDAQ. The IPO was a disaster, as were the problems for Facebook that arose months beforehand, all stemming from investor relations mistakes.
The stock was over-hyped and over-valued, demonstrating an IR failure, as communicating fair valuation is a core goal of the profession, according to NIRI’s official definition.
Facebook looked unreliable when it came to light that large institutions such as Morgan Stanley, may have received disconcerting financial information about Facebook that was withheld from smaller investors. This claim proved damaging to Facebook’s reputation.
Moreover, CEO Mark Zuckerberg was not present at some of the road shows that took place just before the IPO, preventing the company from establishing relationships with long-term investors, and therefore potentially driving the stock price lower.
Then when trading was to begin, a technical glitch with NASDAQ delayed trading by about 30 minutes. The final Facebook IPO price was $38. Investors and analysts expected the stock to ‘pop’ as most do in the first days of trading. Instead, at the end of the first day the share price closed at $38.23. NASDAQ assured that the glitch did not affect the low share price and apologized for the inconvenience. Today the Facebook share price is even less, opening on February 26 at $27.15.
This IPO debacle led to serious critique of Facebook, thus proving need for investor relations practices to respond to the numerous factors that can drive a company’s stock price up and down, including hype, fear, company news, and company earnings (HowTheMarketWorks.com). Facebook experienced all of these in the past year.
After the stock peaked at just $45, investors began to question its value. Then Facebook announced it would increase spending in the upcoming year to improve its mobile app, further distressing investors.
The Wall Street Journal points out another alarming event- CFO David Ebersman and COO Sheryl Sandberg sold millions of dollars worth of their Facebook shares. At the same time, Zuckerberg stayed out of the public eye, leading advisors such as Jeff Corbin to call this time the “Quite Period.” Investors asked themselves if the company has a plan and strategy for the future.
The good news for Facebook and its shareholders is that the company appears to be learning from all these IR mistakes. Facebook released its quarterly reports, and posted them on its website. The company also reported its plans to participate in the Morgan Stanley Technology, Media & Telecom Conference, to be held on February 27, which will be broadcasted live.
While Facebook IROs are starting to follow the two-way symmetrical communications model, it still has far to go. Facebook will need to hold shareholder meetings, show investors it will generate revenue, and maintain users to drive the share price upward.
Facebook has a lot to overcome. The company started off on the wrong foot when the IPO did not meet its expectations. As a young company, Facebook is not yet viewed as credible in the financial community. Additionally, according to a Bloomberg article, the industry itself makes increasing share price difficult, as social media is an intangible entity and investors tend to see this is as a riskier investment.
If Facebook can continue to create new applications, generate revenue, impress investors and consumers, and openly communicate with its publics, its share price will likely increase. The IR team for Facebook should focus on targeting growth investors, as tech companies and social media platforms have many opportunities to develop new capabilities.
Image courtesy of the Wall Street Journal.