Facebook Shares Plummet on Day 2
“The underwriters completely screwed this up,” said Michael Pachter, analyst at Wedbush Securities. “This thing should have been half as big as it was, and it would have closed at $45.
While investor enthusiasm early on was high for Facebook shares and while bankers on the deal increased the stock price and number of shares ahead of the offering, many observers questioned the valuation of more than $100 billion that was placed on the social network, where revenue and earnings growth were already beginning to slow.
The shares fell 13.7% early Monday before pulling off the low.
“Facebook’s IPO priced at a level well-above where we foresaw compelling 12-month returns,” BTIG analyst Richard Greenfield said in a research note Monday. With revenue and earnings growth decelerating in 2012, “we find Facebook’s current valuation unappealing.”
On Friday, Facebook’s shares repeatedly tested the $38 IPO price, but lead underwriter Morgan Stanley reportedly moved to prop up Facebook’s stock price then. A Morgan Stanley spokesman wouldn’t confirm or deny the bank’s role in keeping the stock above $38 on the first day. Shares closed just 23 cents higher—far short of the kind of first-day pop that signals a healthy offering.
Dave Lutz, managing director at Stifel Nicolaus, said Facebook’s underwriters might have stopped supporting the stock’s price to thwart short-term traders counting on the underwriters buying at $38.
“We think this could just be a technique of Morgan Stanley trying to shake out some of the weaker hands,” he said. “What a lot of people will do [when the underwriters continue to step in] is say, ‘If the underwriter’s not going to let it break through, I’ll just sit there and day trade right in front of it.'”
“In theory, [letting the price fall below $38] is a smart idea as long as there’s not broader institutional selling,” he said. “Where Facebook closes today is going to be very important.”
As the stabilization agent on the deal, Morgan Stanley fills the role of ensuring an orderly market in the stock in its first days of trading.
Technical glitches marred Facebook’s debut on Nasdaq Friday as the exchange struggled to deal with a flood of orders. Brokers and investors were unable to cancel or alter trades that had been placed early Friday morning, prompting Nasdaq to delay Facebook’s open for 30 minutes.
Facebook’s weak debut dragged down other newly issued online stocks on Friday, such as Zynga Inc., LinkedIn Corp., Groupon Inc. and Pandora Media Inc. GSV Capital Corp., a Woodside, Calif.-based fund that invests in venture-backed private companies, also posted big declines. GSV has invested in Facebook, Groupon and Zynga, as well as the social-networking company Twitter Inc.
They generally continued to slide on Monday.
Many not participating in Facebook’s IPO are relieved to be on the sidelines.
“From my standpoint, I’m very happy not to be involved,” said Adam Sarhan, head of New York-based fund Sarhan Capital. “There’s a lot of hype and hysteria revolving around Facebook.”
—Lynn Cowan and George Stahl contributed to this article.Write to Drew FitzGerald at firstname.lastname@example.org,
or on Nasdaq.com: http://www.nasdaq.com/article/4th-update-facebook-falls-below-38share-ipo-price-100-billion-value-20120521-00696