Remembering the Biggest IPO Flop of All Time


On this day in economic and business history ...

Facebook went public on May 18, 2012. It was the largest IPO, by first-day market cap, of all time. It was also the largest IPO, in terms of value created per month, of all time. From its creation in 2004 to its public debut in 2012, Facebook amassed a value of just over $1 billion per month. Its expected IPO price that would give it a market cap of more than $100 billion. Unheard of! The whole investing world was watching what was sure to be a debut for the ages. Thousands upon thousands of investing novices salivated at the chance to own a tiny piece of the social network no one could get away from.

When the day was done, people began to feel as if Wall Street might have pulled one over on them. The biggest IPO in years -- perhaps decades -- couldn't even muster that coveted first-day pop. Glitchy exchange software delayed the start of trading for Facebook shares, and when trades resumed, the social network's underwriters were forced to step in to shore up the share price, an unexpected move for such a highly anticipated stock.

The plunge was steep. Within a week, 17% of Facebook's first-day value was gone. As June began, Facebook's first-day shareholders found themselves sitting on a 30% loss. A year after its IPO, Facebook's shares remain 30% below the IPO day's closing price. Some analysts, including the Fool's senior technology analyst, Eric Bleeker, took it as a sign of Wall Street's unfettered ability to rig the IPO game against the little guy. Others simply recognized that the price was unsustainably high. Whatever the case, it seems unlikely now that Facebook can ever become the next great tech stock, regardless of whether it can become the next great tech company.

Mmm, genetically modified
The Flavr Savr tomato became the first genetically modified food approved for human consumption when it cleared an FDA review on May 18, 1994. Developed by Calgene, the tomatoes were "enhanced" with an antisense gene to slow the rotting process, which was meant to keep the tomato from softening too soon without restricting the tomato's normal color and flavor from being expressed at the normal time. However, Calgene's scientists were rather poor farmers, and their starting tomato produced drawbacks that couldn't be overcome. Weak harvests and costly shipping methods combined to create an unprofitable tomato, and Calgene eventually sold itself to Monsanto .

The early failure of Flavr Savr didn't stop the rise of GMOs, and it certainly didn't stop Monsanto, which is now the world's largest producer of genetically modified seeds. Today, roughly 10% of all planted crops are genetically modified, with the preponderance of these crops composed of soybeans, corn, cotton, and canola.

Charge it on Wall Street
Strange as it may seem, some of the most durable companies on the market have spent most of their corporate lives traded as over-the-counter stocks -- if they're publicly traded at all. One of the longest big-name existences apart from the big-time exchanges might be that of American Express , which was founded in 1850 but only made it to the New York Stock Exchange on May 18, 1977.

By 1977, AmEx was already far down the road to success, with 8 million cardholders generating nearly $400 million in annual fees. Its two primary competitors, Visa and MasterCard, were still struggling to find both their footing and their identity -- Visa had adopted its current name only a year before AmEx stepped up to the Big Board, and MasterCard would go by "Master Charge" until 1979. As both competing issuers relied on banks to broaden their membership base at a time when banks sagged under the weights of regulatory pressure and persistent stagflation, AmEx could offer a compelling charge-card alternative at favorable terms, which helped it build its brand as the "elite" card -- you could charge as much as you wanted, as long as you paid it back at the end of the month. This strength through difficult financial conditions earned AmEx a spot on the Dow Jones Industrial Average just five years after it joined the NYSE, making it the first financial company in the Dow's history.

An investment on that day in 1977 would have brought you returns of almost 4,000% over the next 35 years. By that point, nearly 100 million AmEx cardmembers were spending more than $800 billion each year.

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Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more insight into markets, history, and technology.The Motley Fool recommends American Express, Facebook, MasterCard, NYSE Euronext, and Visa and owns shares of Facebook and MasterCard. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published