Facebook's IPO Pop Is Finally Here Five Months Later

A hot tech company defined by its founder and losing money releases some financial figures that suggest it can seize upon a massive emerging shift in consumer behavior, sending its stock up by more than 20% in a single day.

That is the kind of story that has defined the most famous initial public offerings of Silicon Valley, but it never materialized forFacebook, perhaps the most well-known tech IPO of all.

Now, five months after Facebook’s IPO debacle, the company’s stock is experiencing the kind of single-day boom that many expected to see in May. In early-morning trading in New York, investors bid up Facebook’s shares by an astounding 23%. The stock was trading hands for nearly $24, an incredible jump for shares that traded for less than $20 to start the week.

Investors are reacting to some good-looking third-quarter financial numbers that Facebook released on Tuesday after the markets closed. Facebook reported adjusted earnings per share of 12 cents, beating consensus earnings estimates by a penny and a revenue increase of 32% to $1.26 billion. But investors were also excited about the fact that Facebook said it generated some $150 million from mobile in the third quarter, representing 14% of its advertising revenue. “I want to dispel this myth that Facebook can’t make money on mobile,” Mark Zuckerberg, Facebook’s CEO, said on a Tuesday afternoon conference call. Facebook’s shares, of course, still have a long way to go just to get back to their IPO price of $38, but this was the kind of event that investors were hoping for from Facebook back in May and got them so excited about it in the first place. The stock rebound comes just in time for Facebook’s employees, who are about to see the restrictions on their stock lifted and will be able sell them after waiting on the sidelines for months.

Still, Zuckerberg might wonder about all the trouble he could have avoided if he and Morgan Stanleywould have priced the Facebook IPO at $19, about where the stock closed at the end of last week. Much of the money Facebook raised in its May IPO that saw lots of stock sold for $38 went to outside early investors in Facebook, not to Zuckerberg or the company. He no doubt wanted to avoid an IPO pop and the idea that he left money on the table, but a 50% drop is not what he had in mind either. If the stock today had increased by more than 25% since its IPO, Zuckerberg would not have employee morale and retention problems and he could do a secondary offering to raise more money for the company if he felt he needed it. He would be a hero today.

Facebook is an incredible company with 1 billion active users employing some innovative and revolutionary technology. Investors are still trying to understand it and figure out what it’s worth. There are still many obstacles to consider and little room for error, but investors clearly feel more bullish about it today.

source: forbes.com

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