Facebook’s IPO Blunder Creates Long Term Problems


Facebook Inc (NASDAQ:FB)’s botched IPO earlier this year, continues to cause pain to the social networking giant. Their stock has plummeted from its IPO price of $38 per share, to its current $21.73 ( 12:30 EST), and investors are increasingly bearish on the future for the company.

Facebook's IPO Blunder Creates Long Term Problems

The stock price falling through the floor immediately after its IPO isn’t the company’s only problem, sadly enough. This price drop has now caused a whole new series of problems, according to BusinessInsider.com’s, Henry Blodgett.

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Blodgett reports that Facebook Inc (NASDAQ:FB) will suffer from lockup releases, which will most likely cause hundreds of millions of new shares being dumped into the market, and he notes, Facebook Inc (NASDAQ:FB) can no longer do a simple “follow on” procedure to manage this process. Facebook Inc (NASDAQ:FB) also faces a massive tax debt of $3 billion, which is related to its employee stock compensation, and now the company can not follow its original plan of selling shares to raise the cash. The third problem for Facebook Inc (NASDAQ:FB), is the employee morale. Following the IPO, employees have much less reason to stay at the company, which will make retention much more difficult, and expensive.

Over the next four months 2 billion shares of Facebook Inc (NASDAQ:FB) stock will be dumped into the market. This will cause serious “share overhang”, as many of the current stockholders will sell in the near future, should the price come back up. Facebook (NASDAQ:FB) can not do a standard second stock offering, because its stock has lost more than 40% of its value, since the IPO. While there is no law which would prevent them from doing such an offer, the stock is in such pitiful shape, that it is not likely to attract very many buyers.

Facebook Inc (NASDAQ:FB)’s tax debt will be another issue altogether, and without having some type of backup plan to raise capital, they may be in trouble. Estimates show that the tax bill for Facebook Inc (NASDAQ:FB)’s employee stock compensation program will be somewhere between $2.5 billion, and $4 billion. Facebook Inc (NASDAQ:FB) had planned on selling shares of stock in a second public offering after its IPO, of course, that was before the IPO failed and the stock bottomed out. Facebook Inc  (NASDAQ:FB) does have a balance on its cash column, $10 billion to be exact. This means that they can afford to write the check for the tax debt, but would not be able to cover it by selling stocks.

The employee retention problem only grows worse as stock continues to dip in price. Facebook Inc (NASDAQ:FB)’s RSU stock compensation program for employees has left most of them underwater. The RSUs are composed of actual stock shares, and hold value for as long as the stock does. However, if the trend of dropping prices continues, they may not have very much value before long.

The future is pretty bleak for Facebook Inc (NASDAQ:FB), considering all the issues they currently face. It will be interesting to see how Mark Zuckerberg, and other top execs plan to turn the company around in the face of rising opposition, such as LinkedIn and Google+.