REUTERS - Facebook shares sank on Monday 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 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 offering price on the open market.
Without that same
level of defense, its shares fell $4.50 to $33.73 in the first 1-1/2
hours of trading. That represented a decline of 11.8 percent from
Friday's close and 25 percent from the intra-day high of $45 a share.
"At the moment it's
not living up to the hype," Frank Lesh, a futures analyst and broker at
FuturePath Trading LLC in Chicago said, adding that some people may
have decided to hang back and buy the stock on the declines.
"Look at the valuation on it. It might have said 'buy' to a few people, but boy it was awfully rich," he said.
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."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.
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.
Shares in other one-time Internet darlings fell in lockstep with Facebook on Monday, with Yelp , LinkedIn and Zynga all lower at mid-morning.
The news was not
all bad, though, as the Nasdaq rose 1.2 percent. High-profile tech
stocks rose sharply, with Apple up 3.3 percent and Amazon 1.6 percent higher.
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.
"It was just a
poorly done deal and it just so happens to be the biggest deal ever for
Nasdaq and they pooched it, that's the bottom line here," said Joe
Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
NASDAQ CHANGES
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 exchange 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.
"It doesn't instill
confidence for clients. Talk about trying to convince them it isn't a
casino," one Midwestern financial adviser told Reuters on Monday.
Separately, a
source said Morgan Stanley's brokerage arm still had a "large number" of
share orders from Friday that were not confirmed, which it was working
to resolve.
A Facebook spokeswoman declined to comment on the share price issue.
But analysts said that after the initial frenzy, investors were quickly becoming cautious about the stock.
"Investors are increasingly aware of the risk embedded in the stock price.
There are real concerns about growth and advertisers' frequent lack of
certainty how best to use Facebook, along with rising costs and ongoing
acquisition risk," said Brian Wieser at Pivotal Research Group, who has a
$30 target on the stock.
"At $38, the stock is priced for perfection in a manner that implied that risks were negligible."
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