On the other hand, if they sell the stock to the public at $38 and it drops down to $34, it's someone else that's out the $4. Sure, it may create some temporary negative publicity, but, as you stated, they will recover.
If not those shareholders may also want to exit shortly after the IPO, creating a success story for the IPO should increase demand creating a better market for shareholders.
I do agree with you that in a market with rational agents and solely from the POV of Facebook, Inc. that they did the best thing, but I think in a market filled with irrational agents motivated primarily by price movements that it creates the wrong story for the next 3 to 6 months in the overall social context.
What they've created is dinner conversation about how Facebook is flopping and has provided lots of ammunition to the nay-sayers, rather than 'proving' the nay-sayers wrong.
I tend to see Facebook's business fundamentally as hype, people use it because other people use it, not because of some intrinsic thing that makes it better than any other social network. It's moat is it's userbase not it's technology.
It's like Coca-Cola, people drink Coke because other people drink coke, not because it tastes better than Pepsi. It's the fundamental reason why New Coke was a flop and Pepsi taste tests don't matter.
The attitude expressed in your comment is really disturbing.
It seems like people are investing in what other people will be willing to buy this otherwise useless stock at, and those people are only willing to do it because of yet other people willing to buy it for the same reason. Is that not correct? Seems like an extremely bizarre form of "investment", it's betting on a horse, not owning a portion of a horse.
Different situation. Pricing the IPO lower (as others have pointed out) would bring less money to facebook. And of course in the case of real estate there is no obligation to sell even if someone offers the asking price or even over the asking price.
Facebook is in for the long haul. This IPO gave them a hefty bit of cash - we probably won't see the results in full for years to come.
I don't think they priced it right, a $30 sell price could have created a 13% bump today, a big gain on opening day can create demand from retail. It changes the whole story, Facebook should know well enough the social effects of perception, even though the fundamental story is the same. The idea is not to cash out on IPO day, it's to create a story of growth and success and then cash out a few days later as the growth has whipped investors into a frenzy.
It reminds me of my realtor who would put houses on the market extremely underpriced generate huge amounts of interest. A bidding war would ensue almost immediately amongst those emotionally attached to the 'great deal'. After the bidding war the seller would have an offer 25 to 30% higher than market. The internet equivalent is $300 ebay items listed for 99 cents. Facebook fucked the IPO up by failing to generate interest through a success story, it will recover though.
Honestly, if you're 'investing' for two days you're not interested in P/E but rather technical analysis and market sentiment, both of which are poor right now, as nothing fundamental about Facebook's business has changed in the last week.