Facebook shares sank 11 percent in the first day of trading without the full support of the company’s underwriters, leaving some investors down almost 25 percent from where they were on Friday and driving others to switch back to more established stocks.
Facebook’s debut was beset by problems, so much so that NASDAQ said on Monday it was changing its initial public offering (IPO) procedures. That might comfort companies considering a listing, but does it little for Facebook, whose lead underwriter, Morgan Stanley, had to step in and defend the US$38 offering price on the open market.
Even so, one source said Morgan Stanley’s own brokers were at one point “ranting and raving” about glitches that left unclear what trades had actually been executed.
Without a fresh round of defense, Facebook shares ended down US$4.20, at US$34.03, on the NASDAQ. That was a decline of almost 25 percent from Friday’s intra-day high of US$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, adding that some people might 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 drop in Facebook’s share price wiped more than US$11 billion off of the company’s market capitalization — it became a sufficiently interesting pop culture story that even gossip Web site TMZ did a brief item on Monday morning.
Volume was again massive on Monday, with nearly 168 million shares trading hands, making it by far the most active stock on the US market. Nearly 581 million shares were traded on Friday.
The drop was so steep that circuit breakers kicked in a few minutes after the open to restrict short sales of the stock, according to a notice from NASDAQ.
Shares of other one-time Internet darlings fell in lock-step with Facebook, before rebounding on their own merits, with Yelp and Groupon rising. Zynga and -LinkedIn fell, though.
The news was not all bad, though, as the NASDAQ rose 2.46 percent. High-profile tech stocks rose sharply, with Apple up 5.8 percent and Amazon 2 percent higher.
Still 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 easy 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.
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.