Facebook shares plunged below their offering price in early trade Monday, as early buyers sought to cut losses during the stock's first full day of trade.
In midday trade, the shares were at $33.92, down 11.25% for the day and well below the $38 initial public offering price, which made Facebook the second largest U.S. IPO of all time.
The tumble followed a turbulent opening trading session on Friday, which saw an early surge in Facebook shares, then a fall back to the offering price of $38. With help from underwriters, the stock ended up slightly.
"Retail investors are scared. Most people thought this was a hot deal, and now that it's not, no one knows where the bottom is," said Lou Kerner of the Social Internet Fund.
"Underwriters generally support the stock at the offering price, and that support now appears to be exhausted."
Kerner said the action was "reminiscent of the Google IPO, which struggled out of the gate. But when Facebook reports second quarter numbers, likely sometime in early-to-mid July, the shares will increasingly trade on the fundamentals, not on fear."
Douglas McIntyre at 24/7 Wall Street said he sees the shares tumbling as far as $28 -- the low end of the original price range before it was boosted.
"Facebook's management may have insisted that a $38 valuation was important because they wanted to raise as much money as possible, even if that risked only a small increase in its shares," McIntyre said.
"Nothing in Facebook's financial fundamentals changed in the past two weeks. If anything, its valuation should have been undermined some by news that General Motors (IW 500/5) dropped its advertising from the social network because it was ineffective." See article.
Other analysts said the market was unable to digest the massive amount of shares being offered, particularly with investor sentiment cautious over economic conditions and a tense situation over the eurozone and Greece.
Michael James at Wedbush Securities said the social media stocks appear "oversold" after what he said was "an underwhelming IPO to say the least.
"It continues to be a trader-dominated stock," he said "There's a lot of shorter-term traders paying attention to the stock. It was the most heavily traded stock on Friday and it will probably be today."
Trip Chowdhry at Global Equities Research said Facebook has failed to convince the market it can boost revenues with users moving to mobile Internet.
"We think Facebook is a good company but not at these valuations," he said.
Facebook shares seemed to find a floor at $33.00, as U.S. markets were generally higher.
Underwriters had expanded the Facebook offer to 421 million shares and raised the price just days before the IPO.
Listings are usually preceded by an elaborate dance, as underwriters and firms try to manage expectations.
Nevertheless the eight year old company raised $16 billion in an issue which ultimately valued it at $104 billion. But with the stock plunge, the value slid to around $93 billion.
Some analysts contended that the cool response to what was billed as the hottest public stock offering in years showed that investors have learned from the folly of dot-com boom days and are gauging the social network's potential to turn its popularity into profit.
Market trackers have reported that people are much more likely to click on ads at Google than at Facebook.
"The marketing community is increasingly recognizing that Facebook is of very limited value as a marketing tactic," said Pace University business school professor Larry Chiagouris.
"The best advice to investors is to pass on this one," he said. "The best advice to marketers is to limit spending on Facebook until it can prove it returns meaningful results."
Copyright Agence France-Presse, 2012
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