After Facebook went public on May 18, 2012, the IPO was often described with one word: disaster.
Facebook first minutes of trading were plagued by technical glitches at the Nasdaq. Dozens of lawsuits were quickly filed over the IPO — both for the trading errors and for Facebook allegedly withholding negative information from investors.
To make matters worse, the stock petered out almost immediately. Facebook barely budged above its IPO price on its first day of trading and fell below it on the second day. It would take more than a year to bounce back above that mark.
“We understand that a lot of people are disappointed in the performance of the stock,” Mark Zuckerberg, Facebook’s CEO and cofounder, said at the company’s first shareholder meeting in June 2013. “And we really are too.”
Today that all sounds like the sad story of some other troubled company. Five years after going public, Facebook has transformed itself from investor punching bag into Wall Street darling.
In Facebook’s first months as a public company, investors worried about the social network’s ability to transition from making money on desktops to making money on smartphones. Now, mobile is Facebook’s not-so-secret weapon.
About 85% of Facebook’s advertising revenue came from mobile in the first quarter of this year. By comparison, mobile accounted for effectively nothing at the time of its public offering. There are also more than one billion people who only use Facebook on mobile devices.
“Facebook is the textbook example of proving naysayers wrong,” says James Cakmak, an analyst with Monness, Crespi, Hardt & Co.
Facebook ended Wednesday at $144.85 a share, a nearly fourfold increase from its IPO price of $38 a share. In fact, Facebook is now trading at more than eight times its low of $17.55 reached during that first year.
That incredible turnaround has propelled Facebook to become one of the five most valuable companies by market capitalization — and made Zuckerberg the fifth richest person in the world.
Zuckerberg has pledged to invest nearly all of his net worth in philanthropy and public advocacy. In the process, he has positioned himself as a kind of younger statesman — potentially setting himself up for a career in politics, or at the very least boosting Facebook’s brand and influence.
The stock surge, combined with the $16 billion raised in its IPO, has also fueled Facebook’s billion-dollar acquisitions of services like WhatsApp and Oculus. And the healthy stock has only made it harder to compete with Facebook for talent.
Facebook’s rivals have continued to struggle on Wall Street while Facebook has soared.
LinkedIn was acquired last year after its stock plummeted. Twitter is still below its IPO price and fighting to prove it can keep growing its user base.
And Snap, the parent company of Snapchat, tanked 25% after its first earnings report this month on concerns about heavy losses and slow user growth. Some of its slowing growth is thought to be the result of Facebook investing aggressively in copying Snapchat’s features.
Michael Pachter, an analyst with Wedbush, says Facebook outperformed because it has “better management than the others” and is more “adaptable.”
Facebook does face challenges. In recent months, it has come under fire for not doing more to crack down on fake news and violent videos. It’s also expecting ad sales growth to start slowing after an impressive run, but it can tap into other services like Instagram, WhatsApp and Messenger to boost its bottom line.
As long as Facebook holds onto its massive audience, it has what Pachter calls am “virtually insurmountable competitive advantage.” And its user base only continues to get more massive.
When Facebook went public, it had more than 900 million users. Today it has more than 1.9 billion. In other words, it has added roughly one billion users. Not bad for five years.
