Facebook, the online social media giant, was the fastest company ever in the S&P 500 Index to reach a $250 billion market cap.
Facebook first filed to go public on February 1, 2012, applying for a massive $5 billion IPO. The company then held the IPO on May 17, 2012 with a share price of $38. Valued at $104 billion, Facebook achieved the largest valuation ever for a newly listed company. The IPO raised $16 billion, the third-largest in US history.
The company started trading on May 18 and although the company set a another record for the volume of trades, 460 million shares, the stock struggled to stay above the IPO price. Technical glitches made trades even harder, with the glitches preventing orders from going through.
Yahoo! Finance on May 22 reported that Facebook’s lead underwriters, Morgan Stanley, JP Morgan and Goldman Sachs had cut their earnings forecasts for the company half-way through the IPO process.
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Facebook stock had begun to plummet at this point, with a ‘circuit breaker’ used in efforts to slow the decline in the Facebook stock price. Facebook’s IPO was then investigated following calls from the Securities and Exchange Commission and Financial Industry Regulatory Authority, with the company compared to a pumnp and dump scheme. A lawsuit was filed in May 2012 because of the trading glitches, with other lawsuits alleging that a Morgan Stanley underwriter had revealed adjusted earnings estimates to preferred clients.
Other lawsuits were also filed on the belief that adjustments to earnings estimates were told to underwriters by a financial officer at Facebook, who used the information to cash out and leave overpriced shares to the general public.
By the end of May 2012, the Facebook stock price had lost over a quarter of its starting value, leading The Wall Street Journal to label its IPO as a ‘fiasco’.
