Can't Get a Piece of the Facebook IPO? Lucky You!

Facebook IPO
Facebook IPO

A lot of people have been scrambling for a piece of Facebook's IPO this week, but you're probably out of luck. Underwriters save their allotments of freshly minted shares for prized clients, leaving most ordinary individual investors to bid on new offerings after they hit the open market and get bid up to higher prices.

In this case, it's just as well.

Big institutional investors and wealthy brokerage clients will get first dibs on the Facebook IPO shares before they begin trading. That may seem like a great deal after a probable initial price pop. But check your jealousy at the door.

With its market valuation approaching $100 billion, more than a few analysts are skeptical that the social-networking giant with more than 900 million active users will be able to sustain its lofty price tag.

Don't be surprised if Facebook finds itself trading below its IPO price before long. That sort of thing happens, and a lot more often than you might expect.

Let's go over a few companies that have gone public over the past year and are trading below their original IPO price tags.



Everybody wanted a piece of the daily-deals leader when it filed to go public. The model seemed like a no-brainer. Groupon was supposedly selling prepaid vouchers for discounts at restaurants, spas, and other service providers and keeping as much as half of the value of the deals for its marketing efforts. It was a win-win-win: Consumers got a great deal, merchants landed new customers, and Groupon made a ton of money.

Investors began to worry when they actually got a glimpse of Groupon's financials: It wasn't turning a profit. Global expansion costs ate into the business, but unusually high refund requests and cutthroat competitors poked holes in what many believed would be a slam-dunk model.

Groupon went public at $20 in November, and even though the shares quickly traded above $30, the stock was trading below $10 last week. A surprisingly upbeat quarterly report on Monday has helped move the stock higher this week, but it's far away from $20.


Zynga (ZNGA)

Everybody loves Words With Friends, Draw Something, and FarmVille. The same can't be said for the leading social-gaming company itself.

Zynga went public at $10 in December. It too moved higher on its first day of trading. Even though Zynga is probably the best Facebook coattail play available -- accounting for 15% of Facebook's revenue -- given the fickle nature of social gaming, the market is concerned.

When Zynga was considering going public, it was all about Mafia Wars and FarmVille. Now the company is under pressure to continue cranking out hits or acquire the upstarts that are making them (e.g., the companies behind Words With Friends and Draw Something). Zynga's stock was trading below $8 earlier this week.

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Pandora (P)

The music discovery website has done just about everything investors expected the company to do. Pandora is now available through the smartphone integration systems at two dozen automakers. Pandora has occasionally been profitable.
Its popularity is booming. There were 51.9 million active listeners in the month of April -- 52% more than where the streaming service was a year ago. Plus, Pandora served up 1.06 billion hours of music last month, an 87% surge over the past year.

Yes, the math means that the average active listener is streaming more music than ever -- just more than 20 hours a month. Yet despite all of Pandora's success, the company that went public at $16 back in June was trading between $10 and $11 Wednesday morning.


You're up, Facebook

There have been plenty of debutantes that have scored well over the past year. Facebook isn't going to sink just because other big names have let investors down.

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Still, it pays to remember that Groupon, Zynga, and Pandora were hot IPOs at first. Investors were clamoring for a piece. All three companies are leaders in their respective Web-fueled industries -- and that hasn't changed. Groupon, Zynga, and Pandora are more popular now than they were when they went public. Investors just feel that the stocks are worth less, and that may well be a snapshot of Facebook in a few weeks or months.

So don't kick yourself for missing out. IPOs don't always stick to their initial gains.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article.

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