Facebook IPO: Success or failure?

[Commentary] Many articles are touting the failure of the Facebook IPO. The company went public at $38 a share and traded up, settling back down at slightly over the IPO price. I don't think I would call that unsuccessful. The next day of trading, Facebook slumped to $34 per share. It's tough to read early price action, but my trader instinct says it was an over-anticipated and over-hyped product. Retail investors could understand it, heard about it, could experience it and bought it. Once they were out of the market, there was no one left to buy it. But, I still think it's a successful initial public offering. Why do I think Facebook was a success? What is an initial public offering anyway? Why does a company do it? Thinking about that changes the one day metric of success or failure.

• First, the company was started in 2004, grew, and went public in 2012. Eight years to IPO with an uphill environment of bad economy and bad regulations that were huge impediments to them. Since 90 percent of digital companies fail, just surviving was great. Of all the companies that start up, most are acquired. Facebook actually becoming what they have become is pretty awesome when you look at the odds.
• Second, a company goes public to get capital for growth. In the analysis that takes place before the IPO day, the company and the investment bankers helping it have a lot of discussions about where to price. From the company perspective, they want the highest price possible. The investment bankers play both sides of the fence, wanting the highest price for the company, but they want to leave room for investors to make some money as well. That is what helps create the initial market.