A month later, fallout from Facebook IPO persists

SAN FRANCISCO -- When Facebook went public a month ago today, the early betting was that it would storm out of the IPO chute and usher in a new wave of tech stock offerings. Some went so far as to compare its impact to that of Google's 2004 IPO.

But Facebook's initial public offering went from an anticipated bump up in price into a dump, and the ripples extended far and wide on the technology landscape. "The IPO was a disaster," says Geoff Cook, chief operating officer of social network MeetMe. "It definitely cooled interest in the sector. It changed the tenor of the conversation."

The chilling effect that Facebook's fortunes could have on other companies eyeing their own IPOs was underscored in a blog post by Y Combinator founder Paul Graham, cryptically called "start-up apocalypse." In it, the head of the company that helps start-ups get a strong financial boost said investors are convinced that Facebook's IPO "will hurt the market for earlier-stage start-ups."

It didn't take long after Facebook's IPO face-plant for many companies to abandon their dreams of going public. This year, 29 companies have pulled their plans to go public. That's level with this point in 2011 but up 53% from this point in 2010, Renaissance Capital says.

"Some people thought the (Facebook) IPO would jump-start the IPO market," says Richard Peterson of S&P Capital IQ. "But it's caused just the reverse."

Many of the companies getting cold feet are in tech: Travel search company Kayak Software and Vkontakte, one of Russia's most popular social networks, quickly delayed their IPOs after Facebook's fizzle.

"It boggles my mind that the IPO of the century turned out so badly," says Greg Tseng, CEO of social network Tagged. "This was supposed to be our (sector's) Google," he says, referring to social media. "If you told me (Facebook) would open at $38 and now be at $28 (on June 6), I would have said you were nuts. … It definitely hurt the perception of our whole industry."

The lineup of IPO hopefuls continues to fade. Just 11 companies in May filed plans to go public, down 66% from May 2011 and the lowest level of activity in the month of May since 2009, during the global financial crisis. The tepid IPO climate might even scotch altogether the hopes of other start-ups, forcing them to consider acquisitions by larger companies such as Google, Apple and Amazon — perhaps even by suddenly cash-rich, post-IPO Facebook.

Making things worse is that Facebook is not alone in disappointing IPO investors. Other high-profile IPOs, especially in the social-networking and Internet industries — including online game site Zynga, online discounter Groupon, online review site Yelp and Internet radio station Pandora — have all faltered and share prices have fallen at least 30% since trading began.

This year, 35% of IPOs priced below their expected price ranges, a strong indication that companies must resort to discounting their shares just to attract enough attention to get the deals done. The number of companies going public at lower-than-expected prices is up from 24% in 2011 and 29% in 2010.

The bigger IPO picture

Entering May, 58 companies had priced their IPOs this year, says Renaissance Capital. That was the best showing since 2000, signaling to some that investors were finally wading back into IPOs after getting burned in that year's dot-com crash. Facebook was supposed to open the IPO floodgates.