Thumbs down for Facebook
FACEBOOK shares plunged on their second day of trading yesterday as traders rejected the social networking giant’s much-hyped flotation.
Facebook shares sank by five per cent in pre-market trading, opening at $36.53 before dipping by as much as 14 per cent to a low of $33.
The shares eventually settled at $34.03, a drop of 11 per cent, when markets closed.
The share movements on Friday, when the stock managed to keep its head above the $38 IPO price, led to suggestions that Morgan Stanley, Facebook’s chief adviser on the deal, had stepped in to keep the stock afloat.
Facebook’s IPO prospectus outlines that the banks advising on the deal can purchase up to an extra 63,185,042 shares above their allotment to attempt to stabilise the price.
But as the market continued to spurn the float yesterday, Morgan Stanley seemed to accept defeat.
One investment banker told City A.M., “You have to make a judgement call at some point as to whether you’re just going to get buried. I think [Morgan Stanley] would have pulled away from the position [to keep buying yesterday]. But the question is why did they keep re-pricing upwards last week?”
Facebook originally outlined a $28 to $35 per share price span for its long-anticipated public offering, but last week – just days before hitting the stock exchange – hiked the range to $34 to $38, citing strong demand.
“The tremendous hype and drive in the few days before the IPO skyrocketed expectations. But the fundamentals of Facebook as a business are relatively immature,” Robert Marcus, chief executive of QuantumWave Capital boutique investment bank, told City A.M.
“Trading [yesterday] was 100 per cent predictable,” he added.
The social network’s Friday debut as a public company was also marred by technical problems with its chosen stock exchange, Nasdaq.
The tech-favourite bourse yesterday said it will set aside a $13m pot to reimburse disgruntled traders who were affected by Friday’s glitches.
But some estimate the total damage from Nasdaq’s malfunction to be nearer the $100m mark, meaning the stock exchange’s offering will not placate many brokers.
Mark Zuckerberg’s Facebook stake, which was worth $19.25bn after Friday’s float, lost more than $2bn in value yesterday.