Facebook IPO: Shares Sink 11 Percent as Reality Overtakes Hype

Facebook shares sank 11 percent in the first day of, leaving some investors down almost 25 percent from where they were Friday and forcing others to switch back to more established stocks.

The largest social networking sites shares fall on the company's multi-billion stock market debut in New York as the banks advising it stepped in to buy. Photo: Facebook

Changes in IPO procedures may comfort companies considering a listing, but does it little for Facebook, whose lead underwriter, Morgan Stanley, had to step in and defend the $38 offering price on the open market.

An insider told reporters that Morgan Stanley’s own brokers were at one point “ranting and raving” about glitches that left unclear what trades had actually been executed, reports Reuters.

However, without a new round of defense, the social network’s shares ended down $4.20, at $34.03, on the Nasdaq. That was a decline of almost 25 percent from Friday’s intra-day high of $45 a share.

“At the moment it’s not living up to the hype,” said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago.

The specialist added that some people may have decided to hang back and buy the stock on the decline.”Look at the valuation on it. It might have said ‘buy’ to a few people, but boy it was awfully rich,” he said.

“The valuation is all about future expectations,” said Andrew Caldwell, a valuations partner at BDO in London. “There’s no basis for it in current performance.”

The decrease in Facebook’s share price wiped more than $11 billion off of the company’s market capitalization. Nonetheless, volume turned out to be massive on Monday, with nearly 168 million shares trading hands, making it by far the most active stock on the U.S. market.

As a notice from Nasdaq claims, the shares drop was so steep that circuit breakers kicked in a few minutes after the open to restrict short sales of the stock.

“One of the things that we are seeing in Facebook is a lot of emotional trading, in that over the weekend much of the media coverage was negative, and that could be weighing on investors’ decisions to get out of the stock,” said JJ Kinahan, TD Ameritrade’s chief derivatives strategist.

Shares of other one-time Internet darlings fell in lock step with Facebook before rebounding on their own merits, with Yelp and Groupon rising and Zynga and LinkedIn falling.

That means that the news was not all bad, as the Nasdaq rose 2.46 percent. High-profile tech stocks rose sharply as well, Apple reportedly reached point of 5.8 percent and Amazon 2 percent higher.

FuturePath’s Lesh revealed some investors took their money out of Apple to buy Facebook, and now they are thinking of returning back to Apple given the lackluster performance of Facebook thus far.

By mid-afternoon on Monday, though, there were speculations that some investors might be coming back in to Facebook. The stock was well off the lows of the morning, and some market players saw an entry point forming.

“We see 38 percent of the ideas on Facebook are short and 62 percent have a more long bias,” said Tim Murphy, general manager for the Americas at TIM Group, which transmits and tracks equity trade ideas from 750 brokerage firms for institutional investors globally. “Brokers are saying to their clients there is a good opportunity here.”

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