Pivots are gut wrenching. The more eyes there are on the company, the tougher they are. Therefore, public-company pivots are usually the most gut wrenching. Many public companies of the past ceased to stay public because their leaders couldn't face the pivot (change is a bitch - who moved my cheese?!), their business radically declined, and they eventually got delisted from NASDAQ or the NYSE.
Two and a half years ago, Facebook went public. Initially, it wasn't pretty. Articles like "7 Reasons Why Facebook IPO Was a Bust" were written. Mark Zuckerberg's roadshow hoodie was mocked (or praised, depending on your point of view). Morgan Stanley's lead tech investment banker, Michael Grimes, was mocked by the media for months. I know Michael and think highly of him, and it was painful for me to see him go through this (note: he and I never discussed it, I just felt empathy). Facebook went public on May 17, 2012 at a price of $38 per share. Just a few months later, on August 26, 2012, you could buy a share of Facebook for $18.06. What happened?
No doubt Facebook was the most overhyped IPO of 2012. However, private-market buyers on exchanges like SecondMarket were paying around $38 per share for Facebook stock before it went public. When we were pricing the IPO for Bazaarvoice, we did so based on demand, which we, Morgan Stanley, and our other bankers assessed based on the "order book" of the funds that lined up to buy our stock as a result of our roadshow. And the demand was high enough for us to price the Bazaarvoice IPO at $12 per share, which was the max end of the range we were allowed without refiling (we had $8-10 per share on the cover of the IPO and the max you can price is 20% above your max range). So if you are Facebook's CEO or CFO, you note what the demand is and you price accordingly. You try your best to leave upside but there are no guarantees of future performance and the risks are tediously detailed in your IPO prospectus. I would argue that Facebook priced their IPO correctly. I would also argue that we did so at Bazaarvoice. If you ever raise money for your company, you know you will do so based on the demand. If you are smart, you will do your best at pricing your round so that there is upside for everyone. But you won't always get it right because tech is very hard to predict and changes much more quickly than most other industries (watch this short clip from a 1994 Steve Jobs interview on his legacy). It is only different in the private market in that it is a private event - only you and your investors choose if you want to disclose the exact price paid for your shares. But, like a public company, your private-market stock price is in fact fluctuating every day based on how your company is performing as well as how the overall US and even world economy is performing. You just don't see it because your stock isn't always being traded. In the public market, your price changes in real-time and everyone sees it, all the daytime.
Why didn't the Facebook stock price stay above $38 then? Because Facebook was caught with one of the most radical platform shifts in the history of tech: the shift to mobile. Look at what has happened over just two and a half years with this chart produced by Business Insider this week, after Facebook reported their earnings:
Since Facebook went public, non-mobile advertising has essentially stayed flat while all of the growth has been in mobile advertising. And look at the shift in users from desktop to mobile since Facebook went public:
This is exactly what the market was terrified of right after Facebook went public, and it was reflected in that low of $18.06 per share. The market saw the stunning, hard shift of users from desktop to mobile and Facebook didn't have a good mobile strategy. They were facing an epic pivot and needed to execute "flawlessly".