Facebook Shares Fall Sharply in Morning Trade Following Shaky IPO

Category: Companies / May 21, 2012 3:49PM EDT

Facebook shares sank on Monday (May 21) in the first day of trading without the full support of the company's underwriters, leaving some investors down 25 percent from where they were Friday (May 18) afternoon.

Facebook's debut was beset by problems, so much so that Nasdaq said on Monday it was changing its IPO procedures. That may comfort companies considering a listing but does little for Facebook, whose lead underwriter Morgan Stanley had to step in and defend the $38 (USD) offering price on the open market.

Without that same level of defense, its shares fell $4.72 to $33.51 by 1445 GMT / 1045 EDT. That represented a decline of 12.4 percent from Friday's close.

Some argue that the stock was simply valued too highl.Joseph Foudy of the NYU Stern School of Business says the stock was simply valued too high.

The fact that it's gone down in price is purely a reflection of the initial offering price and the fact that it was so rich. I mean the company's valued at something like 75 or 100 times earnings and we really have no indication that its going to be able to earn the kind of revenue that would justify that valuation, said Foudy.

The losses wiped some $19 billion off of the company's market capitalization -- not far from what Chief Executive Mark Zuckerberg was worth personally when the stock debuted.

Volume was again massive, with more than 96 million shares trading hands by 11 a.m. EDT (15OO GMT), making it by far the most active stock on the U.S. market. Nearly 581 million shares were traded on Friday.

As the stock fell, there was a long list of questions -- ranging from whether the underwriters priced the shares too high to how well prepared the Nasdaq was to handle the biggest Internet IPO ever -- and few immediate answers.

 I don't attribute this to the market or the technical difficulties listing it. I think it's entirely just a question of its very rich price, said Foudy. Nasdaq said Monday morning the changes it was making would prevent a repeat of what happened Friday, when glitches prevented some traders from knowing for hours whether their trades had been completed. 

 The drop was so steep that circuit breakers kicked in a few minutes after the open to restrict short sales in the stock, according to a notice from Nasdaq.
It's an unproven company, an unproven CEO who has the vast majority of the voting shares and you pay a discount any time you buy into a company in which you have no vote, added Foudy.

The Nasdaq also said it would implement procedures to accommodate orders that were not properly executed last week, which could ultimately lead to compensation for some investors.

But analysts said that after the initial frenzy, investors were quickly becoming cautious about the stock.

Social media is everything, particularly for a younger generation, but that doesn't indicate anybody can make money with it. Obviously without water and air we'd all be dead, but that doesn't mean any companies able to capture the value from those. And with Facebook as well, the fact that friends are on there doesn't mean that there's an advertising or revenue stream that's clear, said Foudy, who added that he thinks the stock will probably end up trading in the 25 to 40 dollar a share range.

A Facebook spokeswoman declined to comment on the share price issue.