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Maybe Facebook should Friend AOL

May 20, 2013

Back in February 2012, when Facebook announced its plans to go public, the tech world immediately went crazy. The hype was enormous over what should become one of the biggest IPOs of all time. On May 18, Facebook started trading at $38, giving the company an implied valuation of $104 billion. Unfortunately, what was supposed to be a sure shot investment, turned out to be a dud.

On its first trading day, the stock closed just above its IPO price but only thanks to the company’s underwriters, led by Morgan Stanley, who bought heavily to keep the stock above its offering price. The next week, Facebook’s stock began crashing and it did so until it hit rock bottom at a price of $17.73 on September 4. Those who had bought shares at the offering price of $38 had lost 54 percent of their initial investment in less than four months.  

After Facebook’s biggest lockup expiration in November did not entail the feared fire sale, Facebook’s stock slowly started to recover. Carried by decent results and the introduction of mobile advertising products, the stock gradually climbed back up, but as of yesterday it is still closer to its all-time low than it is to its IPO price.


Those who bought Facebook shares at $38 are still down 30 percent and there are countless investments that would have yielded better results over the past year.      

Remarkably, even AOL and Yahoo, both internet companies of the first generation that had already been pronounced dead, would have been much better investment choices than the much hyped Facebook IPO. Had one invested $1,000 in Yahoo shares a year ago, one would hold $1,787 today, instead of the lousy $688 that Facebook’s early investors have left.

Here’s how some other $1,000 investments would have played out over the past year:

Present value of $1,000 investment on May 17, 2012












From → business, Strategy

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