May 18, 2012 — -- The Facebook IPO generated intense attention from the media and investors on its opening day Friday, but it failed to generate much of a profit.
The stock closed at $38.23 in Nasdaq trading, up just 23 cents from its initial price, when many analysts had expected at least a jump of 5 to 10 percent.
As Max Wolff an analyst with Greencrest Capital Management put it, "this starlet tripped on the red carpet."
The market completed its worst week of the year, contributing to Facebook's disappointing closing price. The tech stock was one of the most-traded stocks on the Nasdaq, however.
The Nasdaq closed down 1.2 percent to 2,779 while the Dow Jones Industrial Average closed down 0.6 percent to 12,369. The S&P 500 closed down 0.7 percent to 1,295.
"Facebook closed up only a few cents but likely would have fared even worse if not for underwriters' buying every time the stock touched $38," Jim Krapfel, IPO analyst with investment firm Morningstar, said. "Facebook debuted at an inopportune time, as overall stock market weakness clearly pressured the shares. Had the company gone public a couple of weeks earlier, first day performance would likely have been much better."
After some technical hiccups, trading in Facebook's blockbuster IPO officially opened to an eager public today at $42.05 a share. The shares faded after that, touching the offer price of $38 numerous times throughout the day. The big investment houses that underwrote the share offering purchased the stock to keep it from falling below the offer price, sources told Bloomberg News and CNBC.
The trading day started with what is being reported as trading glitches at the NASDAQ, though officials at the exchange are not providing any clarifications for now.
Still, at $38, Facebook is priced more than 100 times its profit -- a steep premium compared with Google at 18 times earnings and Apple at 13 times.
Krapfel said he was surprised to see Facebook stay flat given the pent-up retail demand for its shares.
"Clearly concerns regarding the company's valuation, increased insider selling, and GM news are weighing on the stock. Weakness in the stock market over the last several days is also likely playing a significant role," he said.
General Motors said this week it was pulling about $10 million of advertising from Facebook.
Morningstar has valued the company at $32 a share but Krapfel had expected the stock to trade into $50 and above.
He said that Facebook's IPO was "overhyped."
"Everyone and their child was interested in the IPO," he said.
On Friday morning, Mark Zuckerberg, CEO and founder of Facebook, and COO Sheryl Sandberg gathered with a throng of cheering employees at the company headquarters in Menlo Park, Calif., to ring the Nasdaq's opening bell at 9:30 a.m. eastern time ahead of the social media network's long-awaited IPO.
"Right now, this all seems like a big deal," Zuckerberg said before ringing the bell. "Going public is an important milestone in our history. 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."
Trading of the company's shares, designated with the ticker symbol, "FB," was scheduled to begin around 10:45 a.m. eastern time but began almost an hour later because Facebook's underwriter, Morgan Stanley, was reportedly having trouble executing changing orders.
Facebook's $16 billion raised on Thursday evening, when it priced its shares at IPO, brought in more capital in one listing than all of the combined U.S. IPOs this year, which was $12.1 billion, according to Thompson Reuters.
"In the past eight years, all of you out there have built the largest community in the history of the world," Zuckerberg said to employees in Menlo Park Friday morning. "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."
Facebook will raise $18.4 billion including the full share overallotment, which is the second largest initial public offering in U.S. history behind Visa's $19.7 billion offering in March 2008. Visa's initial public offering was priced at $44 a share.
With a large monitor and stage set up outdoors in "Hacker Square," instead of visiting Nasdaq's New York exchange, hundreds of employees gathered in the early hours of the morning in California. Many of them had participated in Facebook's 31st "hackathon," a company tradition described as an overnight sleepover that encourages employees to work on anything but their normal work duties.
Nasdaq's CEO, Bob Greifeld, stood beaming next to Zuckerberg, 28, sans necktie, donning a t-shirt and clapping along with the other employees.
It was a long-awaited moment for the eight-year old company that started in the Harvard University dormitory, Kirkland House.
Not to abandon Wall Street completely, Facebook CFO David Ebersman reportedly was at the Nasdaq in New York City during the opening bell. Instead of scrolling the usual stock prices of the day, Nasdaq's digital billboard at its market center in Times Square this morning read, "Nasdaq Welcomes Facebook."
On Thursday night, Facebook priced its initial public offering at $38 a share, raising $16 billion and valuing the company at $104 billion. The company said it made $3.7 billion in revenue in 2011.
The company offered 421.2 million shares of common A-class stock, which includes 180 million new shares sold by the company and 241.2 million shares sold by existing shareholders, such as early employees.
The biggest IPO for a U.S. technology firm has gotten the attention of everyone from high school students to Wall Street professionals, many of whom are likely among the 900 million monthly users of the social media site.
Out of four recent technology IPOs -- those of LinkedIn, Zynga, Pandora and Groupon -- only LinkedIn has recently traded above its IPO price. LinkedIn's IPO price last May was $45 a share. Shares of LinkedIn were trading down around 5.8 percent on Friday late afternoon at $98.83.
While the IPO will make a number of billionaires out of early Facebook employees and investors, Facebook's lead underwriter, the investment bank Morgan Stanley, will also come out a winner by the fees it will earn. The investment bank determined who got shares of the company before shares are sold to the larger public on Friday.
Krapfel said the media hype and investor buildup are to be expected, despite Facebook's investment risks.
"It's the most hotly anticipated IPO of all time," Krapfel said. "Most of the U.S. population that uses the internet uses Facebook so there's no surprise there would be a lot of interest in the IPO. Certainly with this much hype, there's a lot of demand from investors."
A trend of other high growth tech offerings show that "the more the stock goes up in the first day, the more it declines in the ensuing weeks and months," he said.
ABC News' Lauren Pearle and Zunaira Zaki contributed to this report.