One Year Later, What We’ve Learned from Facebook’s IPO

This week marks the one-year anniversary of Facebook’s public offering, one of the most highly anticipated market events in Wall Street history and among the most disappointing.

From the “systems issues” experienced by Nasdaq to the long and steady decline in the company’s share price – which at $26 a piece remains far below its short-lived, first-day peak of $45 — the Facebook IPO “really took the wind out of the market’s sails,” notes Carter Mack, president and cofounder of the investment bank JMP Group.

The market is still feeling its impact, in the way companies are priced, how shares are redeemed, and the generally tepid market for tech offerings.

Scott Sweet, founder of IPO Boutique, notes, for example, that Facebook has had a chilling effect on early lock-up periods. Sweet cites the period last August when early investors in Facebook were allowed to sell some of their stock, and early Facebook investor Peter Thiel, Facebook co-founder Dustin Moskovitz, and Facebook’s first institutional investor, Accel Partners, proceeded to collectively offload hundreds of millions of dollars in shares, sending Facebook’s stock to a then-low of less than $20 per share.

“Those early lock-ups made a whole lot of people very rich very quickly, which was all well and good but put tremendous pressure on a stock that had already struggled, says Sweet. “Now, lock-ups and the release of shares into the marketplace is a metric that receives more scrutiny when analyzing an IPO.”

Companies and their underwriters have also grown “very thoughtful when getting on that pricing call after [a company’s] roadshow,” observes Lise Buyer, founder of the IPO advisory boutique Class V Group.

Buyer is referring to Facebook’s last-minute decision to increase its IPO’s price range by 14 percent, which valued the company at between $93 billion and $104 billion but wound up leaving public market investors with little to no upside.

“It doesn’t mean companies don’t do it anymore,” says Buyer. “But people are asking many more questions about it when they do.”

Not last, consumer-related Web offerings have been few and far between since Facebook’s public market debut. While there have been a couple of standouts — shares of Trulia, the real estate website, are trading at $31, nearly double their $17 offering price last September – Facebook “seemed to have scared a number of consumer Web companies into thinking a slower path to an IPO might be more appropriate,” notes Buyer.

In fact, in the wake of Facebook’s offering, there’s been a general slowdown in the number of tech companies going public. So far in 2013, just eight tech startups have come out, including Marin Software, Silver Spring Networks, Xoom Corp and Model N, and four of those new issuers are trading below their offering prices (Marin and Silver Spring among them).

That’s not to say that investors are eschewing tech altogether. On the contrary, they’ve eagerly embraced software companies with reliable revenue streams, such as Workday and Rally Software, both of which have posted enormous gains since their respective IPOs in October and April. And two business software companies expected to go public this Friday – the marketing software company Marketo and data visualization company Tableau Software – are expected to be among the hottest deals of the year. (Tableau raised its price range today from $23 and $26 per share to $28 and $30 per share, according to an SEC filing. Meanwhile, an analyst source says that Marketo is “three to five times oversubscribed.”)

Indeed, according to Sweet, investors are very hungry right now for anything that has strong, sustainable financials, solid management, and is “diametrically different than Facebook.”

Mack, of JMP Group, is seeing the same. “The markets have broadened a lot,” he says. “We have tech deals that are pricing this week; we’ve done four biotech IPOs this year. We’ve also seen a lot of activity in the residential and homebuilding and mortgage-related space.”

Facebook “definitely put a damper on the market just as it was starting to feel better last year,” says Mack. “But things feel a lot different today. They feel pretty good.”

“The cycle hasn’t come around yet, but it will,” adds John Fitzgibbon, founder of the research firm I.P.O. Scoop. “The window is open; the demand is there; the direction of the stock market itself has changed.”

Photo: Image courtesy of Shutterstock.