But for the first two hours of regular trading, nothing happened to the share price. “Unchanged,” read the screens on Nasdaq’s exchange and on cable channels that had prepared special segments. When trading finally began at 11:30, applause broke out at Facebook’s headquarters in Menlo Park, Calif.
The stock shot up.
Then chaos ensued.
Traders couldn’t get basic information such as the stock price or even whether their requests for shares were going through Nasdaq’s systems, industry officials with knowledge of the matter said. The stock gyrated wildly. Some investors ran for the exits, selling off or canceling what they had ordered, said the officials, who spoke on the condition of anonymity because they were not authorized to talk about the events.
Facebook tumbled and hit its offering price of $38.
The shares almost certainly would have gone lower, but the banks that put the deal together stepped in to prop up the share price. That may have saved Facebook, the banks and Nasdaq from an embarrassing loss on the first day of trading. The practice is legal, but unusual for such a celebrated stock offering.
Throughout the day, the banks — which included Morgan Stanley, JPMorgan Chase and Goldman Sachs — had to bail out the stock several times, the people familiar with the matter said.
By the close of regular trading, the stock had barely scraped out a gain of 23 cents. To top it off, the Securities and Exchange Commission said it would review the incident with Nasdaq to determine what caused the trading glitches.
Facebook declined to comment on the stock trading. Experts noted that the company was still able to raise a massive amount of money through the stock sale. And analysts said the day’s events were hardly a failure for the social networking company.
Rather, the letdown was on Wall Street.
Industry officials said that most involved in the deal had expected about a 5 to 10 percent gain. In interviews, they pointed the finger of blame at Nasdaq.
“It was just chaos this morning, and that put a bad sentiment on the entire day,” said one official, speaking on the condition of anonymity. “It’s certainly egg on [Nasdaq’s] face. This was the offering of the year and you needed to have your systems in order.”
Nasdaq declined repeated requests for comment. The parent company of the exchange, Nasdaq OMX Group, saw its stock drop 4.4 percent.
In remarks before trading began, Zuckerberg stressed that the stock debut, a big day for the company, was just the beginning.
“Going public is an important milestone in our history,” Zuckerberg told a crowd of cheering employees outside Facebook’s headquarters. “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.”
His comments underscored a tension point between the company and its investors.
Zuckerberg, who owns 55.8 percent of the company’s voting shares, has said that user experience — not revenue — should drive the company. With 901 million users, the company has the largest social network in the world and yet it faces questions about whether it knows how to make money.
For weeks, analysts have cautioned that Facebook’s shares were overvalued because it has yet to prove it can leverage the trove of personal data it has collected from its users.
Many had looked to the Facebook offering as a bellwether for other social media companies. Its performance Friday was accompanied by large losses in the stocks of LinkedIn, Pandora and Zynga.
Although it’s clear that social media will gain importance moving forward, said Arvind Bhatia, a managing director at Sterne Agee, it’s hard to understand how these companies will do from a business standpoint.
“It depends a lot on how good their models are, how well they take advantage of the shift that’s going on,” Bhatia said.
Analysts said the company’s decision to release more shares than originally planned could also explain its tepid stock performance.
“It would have been better if they left it alone and priced out of the range,” said David Menlow, president of IPO Financial. “I don’t believe Morgan Stanley did the right thing, and I don’t believe that Facebook did the right thing.”
(Washington Post Co. Chairman Donald E. Graham is a member of Facebook’s board.)