(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Robert Cyran
NEW YORK, June 5 (Reuters Breakingviews) - Initial public offerings are more than just a one-time event to raise money. The success or failure of a high-profile capital markets deal can also influence how a company is more broadly perceived. Take Facebook (FB.O). Debuting at a lofty valuation helped insiders cash out some stock. But as a new Reuters/Ipsos poll shows, the 30 percent plunge in Facebook stock may hurt the social network’s reputation. That’s bad for a consumer brand.
When an IPO goes well, it can bolster the image of a company among customers and the public. Small local banks, for example, often sell stock to account holders at a discount. Besides aligning the fortunes of company and client together, it can create favorable feelings toward the bank in the community. This can also be done on a bigger scale. When Tesla (TSLA.O) went public, it offered shares to owners of its electric cars. The 41 percent surge in the stock cemented loyalty toward the fledgling brand.
Done poorly, an IPO can damage a brand badly. For instance, the internet telephony firm Vonage (VG.N) aggressively encouraged its customers to buy stock in its 2006 IPO through a voice and email campaign. When the overpriced stock lost nearly half its value in a month, lawsuits flew, and customers were left angry. Some dropped the service.
To be sure, only a fraction of Facebook’s 900 million users took a flier on the stock. Yet 44 percent now feel less favorably toward the social network due to its debut, according to a Reuters/Ipsos poll. The risk of insiders selling more than $10 billion of stock at the highest possible price – leaving outsiders with losses – is that Facebook will be perceived as putting financial interests ahead of connecting people to make the world better.
If that perception holds, it could damage a business dependent on extracting personal information from users; establishing itself as a marketplace; and promoting its “Credits” as a method of payment. Without trust, users may post fewer deeply personal updates, hesitate to use new apps, buy games elsewhere or even flee to rival networks. Facebook’s IPO may be history, but the damage may be lasting.
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- About 44 percent of respondents to a Reuters/Ipsos poll said Facebook’s rocky debut on public markets has made them less favorable to the social networking firm.
- Facebook’s stock has fallen nearly 30 percent below the level it was priced at in its initial public offering on May 18.
- Reuters: Facebook comments, ads don’t sway most users [ID:nL1E8H509O]
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- For previous columns by the author, Reuters customers can click on [CYRAN/]
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