Hey everyone! In addition to my blog posts regarding the chapter readings, I will also be posting various posts that deal with business topics and their connection to the government. These topics will range from stocks, to mergers, and everything in between. By focusing on a business theme, I will be able to discuss current events involving major companies throughout the country and the world as well as the ramifications, politically and legally, that evolve from those companies' actions. Hopefully all of you will find some interest in the topics that I talk about. That being said, let's begin!
For this post, I wanted to talk about Facebook and the whole situation that has developed over the last few months over their new stock. To begin, Facebook started this process by filing for an initial public offering (IPO) in early February of this year. An IPO is what is needed to happen in order to transition from a privately held company into a publicly held company. To achieve this, Facebook had to submit a S-1 form to the Securities and Exchange Commission (SEC), which is basically the "watchdog" that oversees the stock market. Once this was completed, the next couple of months consisted of promoting the stock and obtaining a solid target price to sell the stock on opening day. During this time, the hype surrounding Facebook grew as it drew comparisons to Google, among other various technology stocks.
Once May 18th, 2012 came around, everything was set for a great opening for Facebook. Their initial offering price was set for $38. The company had 421 million shares on hand to sell to the public. The future seemed bright for Facebook until everything started to go wrong. Due to various technical problems and glitches, the opening day was filled with confusion as orders to buy the stock were prevented, leaving many investors wondering whether or not they actually were successful in getting the stock. At the end of opening day, the stock ended up only gaining 23 cents, which was very disappointing to many business analysts. As the following days and month passed, Facebook's stock steadily declined, and as of August 31st, the stock stood at 18.06 points, down over 52% from its original price.
Now that I have talked about the "general" background regarding Facebook's stock, I want to touch on the legal aftermath resulting from the botched opening as well as the overall situation. As of today, over 40 lawsuits have been filed against Facebook and the NASDAQ (the stock exchange where Facebook's stocks are being sold on) due to the opening day debacle. Facebook in turn has asked to consolidate these lawsuits into one major suit since the complaints overlap. In addition, there have been reports and accusations that there have been some information only passed around to preferred clients that gave them an advantage against the everyday investor. This type of action, if proven to be true, is a huge no-no as an even playing field needs to be provided to everyone publicly. On top of all of this, the Securities and Exchange Commission has begun an investigation into whether or not Facebook took part in a "pump and dump" scheme. The pump and dump scheme is basically where the company tries to inflate the price of their stock through untrue positive statements in an effort to sell the stock at a higher price than it is supposed to be (Ex - Enron). All of these allegations and legal battles with the government over the next through months and maybe years will takes its toll on Facebook in my opinion. After everything that has gone wrong, I honestly can't see them bouncing back, especially with the overall popularity on the decline and rival social networking sites such as Twitter on the rise.
Overall, Facebook is in a pretty bad situation as of right now, and it'll be months before any sense of stability, if any, comes for the company. As a closing note, I want to link to this interesting article that I read while researching all of the specifics behind Facebook's IPO. Basically, from my interpretation, if people researched a bit more in depth and read the prospectus, instead of immediately getting sucked into the hype, they could have realized that the stock wouldn't have done so well from the beginning anyway. It just goes to show that it is always better to make an informed decision rather than a decision based on impulse! Until next week... thanks for reading!
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