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Facebook IPO fail: Going the way of 'The Globe'?

Published time: May 18, 2012 20:59
Edited time: May 19, 2012 00:59
Facebook's share prices are seen inside the NASDAQ Marketsite in New York May 18, 2012 (Reuters/Shannon Stapleton)

Facebook's share prices are seen inside the NASDAQ Marketsite in New York May 18, 2012 (Reuters/Shannon Stapleton)

It was the largest first-day gain of any IPO in the history of the US, let alone just Internet companies. And no, this isn’t another tale of Mark Zuckerberg’s rise from a lowly programmer to a Silicon Valley billionaire.

When TheGlobe.com offered an initial public offering in 1998, the primitive social networking site raised nearly $30 million in capital through over 3.1 million shares on their first day alone. By the time Wall Street traders went home, The Globe saw its value skyrocket by 606 percent over its initial share price; at one point in the day, shares had jumped 1000 percent.

"It's like financial fantasy world," Richard Peterson, an analyst with Securities Data, told Cnet at the time. “It's all that Internet mania stuff."

In three years, The Globe was worthless.

While Facebook is unarguably a horse of a different color, one can’t help but make comparisons. After all, the last time the Web was this interested in an IPO of a social networking site, all eyes were on The Globe when the opening bell rang on Wall Street on November 13, 1998.

An article published by the same outlet that touted the up-and-coming Web company three years earlier had pretty much put the entire notion of a successful Internet IPO at risk in another article from Valentine’s Day, 2001.

“Struggling community site TheGlobe.com said Wednesday it faces delisting from the Nasdaq for failing to meet the required minimum bid price of $1 a share,” CNET’s Evan Hansen wrote at the time.

After trading as high as $97 per share on opening day, in three years’ time the worth of stock in The Globe had nosedived to a value of $0.53. CNN Money eventually called theGlobe.com among the ten biggest “dot.com flops” ever.

"Back in the late 1990s, even though The Globe had 20 million users…there were only a couple hundred million Internet users," Stephan Paternot, the site's co-founder, told CNBC last year. "I doubt that most of the analysts that were recommending our stock had used The Globe. Many of them hadn’t used the Internet and weren’t sure if the Internet would even be around."

Things have come a lot way in the 14 years since The Globe went public, but will Facebook’s worth continue to bring profits to its investors? The latest social networking site might not be a flash in a pan like The Globe, but some have already predicted that the site has overstayed its welcome.

“By the time Facebook reaches around 50 percent of the total population in a given country, growth generally slows to a halt,” Facebook’s Eric Eldon told the Daily Mail last year. Eventually, in any locale, the social networking site reaches a point of “natural saturation” where it is practically impossible to pull in more users.

As of this April, Facebook advertises that they have 901 million monthly active users that log-on to chat with friends in over 70 languages. When compared to the World Bank’s current estimate of inhabitants of Earth, the social networking site has already roped in around 13 person of the planet’s population.

Within the last year, however, privacy concerns and issues with the company’s politics have left many users pulling the plug on their own accounts. According to Eldon, more than 100,000 Brits stopped using Facebook between April and May of 2011; 1.5 million Canadians stopped logging on as well, as did users in Russia and Norway.

"I’d like to thank Mark Zuckerberg for validating the entire social network model,” The Globe’s Paternot told CNBC last year.

Paternot might have spoken too soon, though. Despite massive hysteria preempting Facebook’s IPO and rumors that the share price would jump to a worth several times the starting price, when the markets closed on Friday after Facebook’s first full day of offering public shares, prices closed at only a fraction of a percentage more than what sales opened at.

Literally. Shares changed by 0.4 percent at the closing bell.

The mainstream media devoted countless hours in the days before the IPO to hype up what was being branded as the biggest thing to happen to the Internet’s market presence since Wall Street first became a paved off-ramp on the Information Superhighway. Beyond the buildup, though, it is easy to see that Facebook really wasn’t destined to do all that well. Looking at the 31 Internet IPOs that have been held since early 2011, nearly two dozen are trading below their closing price on the day they went public, reports CNN.

And the pop and fizzle of Facebook’s IPO wasn’t unmatched elsewhere — after an afternoon of much hype and nothing else, fellow major Web entities LinkedIn, Zynga and Yelp all saw their value drop during Facebook’s first day.

“Going public is an important milestone in our history,” Facebook CEO Mark Zuckerberg said from Menlo Park, California Friday morning surrounded by employees of the site. “But here's the thing: Our mission isn't to be a public company. Our mission is to make the world more open and connected. In the past eight years, all of you out there have built the largest community in the history of the world. You've done amazing things that we never would have dreamed of, and I can't wait to see what you guys all do going forward."

If it sounds familiar, it’s because Zuckerberg wasn’t the first to say something along those lines. In 1999, The Globe co-founder Todd Krizelman made a similar statement:

“You need to have milestones. You need to be able to tell people ahead of time what the results are going to be and then achieve them or beat them,” he said.

And for the doubters? His colleague Stephan Paternot had a message to them when speaking to Cnet at the same time:

“Just watch the company year after year. And where you say we would fail and you were wrong, if in a year we did it, that'll change the perception,” said Paternot.

“They were skeptical, but now they're not skeptical, and a lot of the early investors were skeptical, and now they're not. It's a constant process of education.”

Within a year, The Globe was garbage. And for Paternot and Krizelman, well, look at them now.

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