Mark Zuckerberg on IPO and Capital Markets

Facebook spent its first eight years resisting exit. It reportedly turned down a seven hundred fifty million dollar offer from Viacom in 2006 and refused Yahoo's one billion dollar bid the same year, while successive private financings marked its value up and down: fifteen billion dollars implied by Microsoft's 2007 stake, ten billion at DST's 2009 purchase, fifty billion in a 2011 investment report. Zuckerberg said in 2010 that the company was in no rush. What forced the issue was mechanics, not ambition: once Facebook accumulated more than five hundred shareholders of round-lot size, securities rules subjected it to public disclosure from 2013, making an IPO the rational path. The company filed its S-1 on February 1, 2012, disclosing 845 million monthly active users, 2.7 billion daily likes and comments, and, honestly flagged, decelerating growth in both membership and income.

Control was engineered into the offering before price was. Facebook instituted a dual-class share structure in 2009, and the prospectus showed Zuckerberg retaining twenty-two percent ownership with fifty-seven percent of voting shares after the IPO, an arrangement that let the founder take the company public without surrendering a single strategic decision. The roadshow that followed tested the packaging: Zuckerberg drew criticism for wearing a hoodie to the first investor meeting, which Wedbush analyst Michael Pachter dismissed as a mark of immaturity, and a half-hour video frustrated investors who wanted technical detail, so it was cut from later sessions. Demand nonetheless let underwriters lift the target range from twenty-eight to thirty-five dollars up to thirty-four to thirty-eight, and they priced at thirty-eight, the top, valuing the company at one hundred four billion dollars, the largest valuation ever for a newly public firm. Facebook added twenty-five percent more shares two days before trading.

The offering itself malfunctioned. Nasdaq's systems faltered on May 18, 2012, delaying the opening trade until late morning and leaving orders uncertain while the price wobbled; investment firms absorbed losses the exchange tried to remedy with a forty million dollar compensation offer against a much larger damage bill, with UBS alone estimating losses up to three hundred fifty million dollars and Bloomberg estimating retail investors lost roughly six hundred thirty million. More than forty lawsuits followed within a month, several alleging that lead underwriters including Morgan Stanley cut earnings forecasts during the roadshow and shared the revisions selectively with preferred clients. Morgan Stanley paid five million dollars that December to settle allegations over analyst conduct. A week after listing the stock traded at twenty-six point eight one dollars, carrying a price-earnings ratio of eighty-five despite shrinking quarterly revenue, the market's verdict on an offering priced for perfection.

Facebook's financial coming of age arrived on a compressed timeline. It reached EBITDA profitability in early 2008 and turned cash-flow positive in September 2009, ahead of schedule, after closing a roughly two hundred million dollar operating gap. The Russian investment firm DST injected two hundred million dollars in 2009 at a ten billion dollar valuation, money Zuckerberg described as buffer rather than necessity. By July 2010 the service counted five hundred million users, half of them logging in daily for an average of thirty-four minutes, with one hundred fifty million on mobile. SecondMarket trades valued the company at forty-one billion dollars by November 2010, pushing it past eBay to become the third most valuable American web property after Google and Amazon. In January 2009, Compete data had already ranked it the most used social network in the world, a position it would not relinquish.

The rebrand changed reporting before it changed anything else. Meta said its corporate structure was not altering, but beginning with fourth-quarter 2021 results it would report two operating segments: Family of Apps, containing Facebook, Instagram, Messenger, and WhatsApp, and Reality Labs, the virtual and augmented reality division whose spending had previously been buried in consolidated numbers. The company also reserved a new stock ticker, MVRS, to begin trading on December 1, replacing the FB symbol of its public life since 2012. The announcement took care to state that nothing about how the company used or shared data would change. For investors, the segmentation decision was the substantive act: it made the metaverse investment legible as a line item with its own revenue and its own losses, quarterly, for as long as Zuckerberg chose to fund it. The Facebook social network itself kept its name; the change applied to the parent company above it.

Facebook's first day as a public company ended with the stock at 38.23 dollars, up 0.61 percent from its offering price, after an intraday surge of eleven percent and a late slide that nearly breached the thirty-eight dollar line the underwriters were defending. A record 566 million shares changed hands in one of the most frenzied share sales in history, and the company closed valued at 104 billion dollars, more than the combined worth of Goldman Sachs and Nike. Zuckerberg, twenty-eight years old and the company's largest shareholder, watched his holding reach 20.4 billion dollars by the closing bell. The narrow escape from trading below the IPO price preserved the optics of the largest technology listing to that date, but the tape told a more ambivalent story than the milestone suggested. Zuckerberg had rung the opening bell remotely that morning from outside his California headquarters, wearing his trademark navy hoodie while staff cheered.

The opening was messy almost from the first moment. Trading was delayed until 11:30 in the morning because the exchange's systems appeared to struggle with the order volume, leaving market makers uncertain whether their confirmations had processed while the price discovery everyone had waited for hung suspended. What was meant to be the crowning ritual of the social-media era, the company that had defined the public internet's second decade joining the public markets, instead began with a half-hour stall and confusion on the floor. The stock's eleven percent early pop faded through the session into the flat close, and the scenes at Nasdaq that morning would feed directly into the recriminations, regulatory reviews, and litigation that followed the offering through the rest of 2012. When trading finally began, more than eighty-two million shares changed hands in the first thirty seconds, and analysts at PrivCo calculated that the underwriters bought roughly three hundred million dollars of stock to keep the price from breaching the offer, avoiding what traders call a busted IPO.