Facebook Inc. (FB)’s 22 percent rally in two weeks has helped the social-network operator avoid posting the biggest slump among the largest U.S. initial public offerings since the start of 2011.
Facebook, which set a record for technology companies by raising $16 billion last month, has unveiled new products and services after the shares tumbled to a low of $25.87 on June 5. PetroLogistics LP (PDH) dropped 20.4 percent in its first month of trading, or 3.1 percentage points more than Facebook, giving the propylene maker the worst return among the 30 largest IPOs since the beginning of last year, data compiled by Bloomberg show.
Concern Facebook was overvalued and that the company will struggle to increase revenue fast enough pushed the stock down as much as 32 percent from its IPO price of $38 on May 17. Since the shares bottomed earlier this month, Facebook introduced a real-time bidding platform to better target ads to consumers and ComScore Inc. released research that showed marketing on the social network is effective.
“Investors are starting to come around to see the significant opportunity of the Facebook platform,” Victor Anthony, a New York-based analyst at Topeka Capital Markets Inc., said in a telephone interview. He has a buy rating on the stock. “It was a botched IPO process but ultimately, the underwriters did their job. If the stock increasingly marches up, all the concerns will be tapered down.”
Facebook fell 1 percent to $31.60 in New York yesterday, near the $31.50 midpoint of the initial proposed price range. The world’s biggest social-networking company and Morgan Stanley faced criticism for increasing the number of shares to sell by 25 percent days before the offering and pushing the asking price to a range of $34 to $38 from $28 to $35.
The Menlo Park, California-based company’s initial trading day was marred by delays, cancellations and mishandled orders. Robert Greifeld, the chief executive officer of New York-based Nasdaq OMX Group Inc., said “poor design” in software driving IPO auctions caused the mishaps.
The IPO coincided with a retreat that erased almost $1 trillion from U.S. equities in May. Stocks in the Standard & Poor’s 500 Index fell 9.9 percent from April 2 through June 1 amid concern global growth will slow and Europe’s debt crisis will worsen. The benchmark gauge for U.S. stocks has since risen 6.1 percent.
Facebook along with Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co. and other underwriters were sued after the IPO last month by investors who said they didn’t publicly disclose lower revenue estimates before the share sale. In April, Facebook reported first-quarter profit fell 12 percent as sales growth slowed and marketing costs more than doubled.
“We’ll continue to exercise caution,” Richard Greenfield, an analyst at BTIG LLC who has a neutral rating on the stock, said in a phone interview. “The path to mobile monetization is unclear. Brands are still learning to use the Facebook platform.”
Facebook makes more than 80 percent of its revenue from advertising targeted to members who access the site on computers. In a filing ahead of its IPO, the company said advertising sales growth wasn’t keeping pace with user growth as more people access the site from mobile devices. Facebook didn’t introduce a mobile ad service until this year.
The stock may get an additional boost in the next week as the underwriters release their first public reports on the company, according to Martin Pyykkonen, a Greenwood Village, Colorado-based analyst at Wedge Partners Corp. The probable addition of Facebook’s shares to indexes run by Russell Investments may also propel gains, he said.
Facebook will join the Russell 1000 Index, according to BlackRock Inc., Credit Suisse Group AG, Investment Technology Group Inc. and Macquarie Group Ltd. The addition will probably prompt the purchase of 11.7 million shares by investors tracking the gauge, Macquarie said on June 11. Seattle-based Russell will post its final membership list for the measure of the biggest U.S. companies on June 25.
Other Internet companies including Zynga Inc. (ZNGA) and Groupon Inc. (GRPN) declined after their IPOs. Zynga fell 7.8 percent in its first month of trading, the fifth-biggest drop among the 30 largest U.S. IPOs since the start of 2011, data compiled by Bloomberg show. Groupon, the Chicago-based daily coupon website, dropped 4.8 percent.
“These companies are fairly new and investors are trying to understand where the valuation should be,” said Tom Taulli, who analyzes offerings for IPOPlaybook.com in Newport Beach, California. “Facebook has had a wake-up call. It realized it needed to show to Wall Street it has a path to monetization.”