Facebook (FB) Stock Crisis: How FB Has Hurt the Wider IPO Market


Historically, June and July are peak months for IPO transactions similar to Facebook. This year will not follow suit. Most non-insiders believe that the FB debacle is the reason for this phenomenon; it certainly did not help the market, but there are several other events that have been depressing new stock issuance.

An IPO Outlook Report by Dow Jones had many relevant comments. The article indicates that 2012 should be a slow year for IPO issues, principally because companies are uncertain they will obtain satisfactory prices for their stock. The timing of the IPO backlog has been pushed back. There have been “no cancellations,” just delays. This situation may worsen because of uncertainty relating to the 2012 elections.

Recent events, in addition to the FB transaction, have put a damper on the IPO market. They include: the European debt crisis, a disappointing jobs report, a Dow Jones Industrial Average struggling to stay positive for 2012, and market volatility. The latter is represented by the Chicago Board Options Exchange “VIX,” also known as the “fear gauge.” Market analysts follow it carefully.

The FB deal has made matters worse; the stock is down 28.7% to date. When important and large transactions have problems, they affect the entire process. Since May 18, no new IPOs have come to market. High growth companies should be able to sell new stock, however, less exciting companies will be challenged.

Two other noteworthy facts are: 187 companies are filed with the SEC to issue IPOs; none have priced their deals. And, more than half of May’s IPOs were trading below their offer prices.

The conclusion to be drawn is that FB’s odyssey will have an extended impact on the IPO market, but deals will still be executed. World and national events will continue to have a great impact on new IPO issuance.

From a technical standpoint, FB will likely result in lower prices for new IPO issuers; institutional investors will need to be convinced that IPOs will trade up on offering day. Additionally, the IPO process, including due diligence and filing disclosures, will be under scrutiny by regulators and lawmakers, a daunting thought.