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Facebook disappoints in trading debut

It was barely a "like" and definitely not a "love" from Facebook investors as the online social network's stock failed to live up to the hype in its trading debut Friday.

One of the most anticipated IPOs in Wall Street history ended on a flat note, with Facebook's stock closing at $38.23, up 23 cents from Thursday night's pricing.

That meant the company founded in 2004 in a Harvard dorm room has a market value of about $105 billion, more than, McDonald's and Silicon Valley icons Hewlett-Packard and Cisco.

It also gave CEO Mark Zuckerberg, 28, a stake worth $19.25 billion.

"Going public is an important milestone in our history," Zuckerberg said before he pushed a button that rang Nasdaq's opening bell from company headquarters at 1 Hacker Way in Menlo Park, Calif. "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."

But for many seeking a big first-day pop in Facebook's share price, the increase of six-tenths of 1 percent was a letdown.

"This is like kissing your sister," said John Fitzgibbon, founder of IPO Scoop, a research firm. "With all the drumbeats and hype, I don't think there'll be barroom bragging tonight."

Added Nick Einhorn, an analyst with IPO advisory firm Renaissance Capital: "It wasn't quite as exciting as it could have been. But I don't think we should view it as a failure." Indeed, the small jump in price could be seen as an indication that Facebook and the investment banks that arranged the IPO priced the stock in an appropriate range.

It was also good for ordinary investors, who are mostly shut out from the IPO price and have to buy the stock in the open market on day one.

And it was good for early investors in the company, who owned more than half the 421 million shares made available in the IPO. Had the stock shot to $60 Friday morning, those early investors would have felt they hadn't gotten enough money for their stakes.

There are some possible reasons for the less than stellar debut. There was broad coverage of the company's slowing growth, and its difficulty in placing advertising on mobile devices, through which more than half its users access the website. And it didn't help that General Motors announced just days before the offering date that it was withdrawing all its paid advertising from Facebook out of doubts that the site is an effective advertising medium.

The 421 million shares that were sold fetched $16 billion and represented 15 percent of the company's stock. Facebook got $7 billion, and the early investors $9 billion. The other 85 percent of Facebook's stock is owned by Zuckerberg and other Facebook executives, employees and early investors. In comparison, Google offered just 7.2 percent of its stock when it went public in 2004. Its stock rose 18 percent on day one.

Technical glitches delayed the start of Facebook's trading by a half-hour. The Securities and Exchange Commission also is investigating problems traders encountered in changing and canceling their orders.

Other social media companies, most of which have gone public in the last year, saw their shares plummet when it became clear what kind of reception Facebook was getting in the public market. Shares of game-maker Zynga Inc. and reviews site Yelp Inc. both hit all-time lows.

If Facebook can continue to increase its revenue and profit at the rate it has the past few years, the stock should rise. Google reported strong earnings after it became a public company, and its stock price more than tripled the first year, from $85 to $280.

Facebook's public debut marked a milestone in the history of the Internet. In 1995, Netscape Communications' IPO gave people their first chance to invest in a company whose graphical Web browser made the Internet more engaging and easier to navigate. Its hotly anticipated IPO lit the fuse that ignited the dot-com boom. That explosion of entrepreneurial activity and investment culminated five years later in a devastating bust that obliterated the notion that the Internet had hatched a "new economy."

It took Google Inc.'s IPO in 2004 to prove that an Internet company with a revolutionary idea could be profitable.

Facebook's IPO almost certainly will enrich other up-and-coming entrepreneurs as Zuckerberg uses the company's cash and stock to buy other startups in an effort to bring in other talented engineers and promising technology. That's what Google has been doing for years. Since it went public in 2004, Google has spent $10.2 billion buying nearly 200 other companies.

Alper Aydinoglu, a DePaul University student who got 50 shares via Etrade at $38, said he was "disappointed with the first day of trading."

His gain on paper: $11.50, but that was before Etrade's standard commission of $9.99.

Aydinoglu still called it an excellent learning opportunity.

"On top of everything, I now have the bragging rights that I participated in one of the most popular IPOs of all time."