May 21, 2012
Facebook Shares Slip On Day 2 Of Trading
Michael Harper for RedOrbit.com
Following what may have been the most anticipated IPO in recent memory, Facebook shares have sunk nearly 13% as of this writing on Monday, May 21. Sinking so low on just the second day of trading is not only embarrassing for the social networking company, it could also keep would-be investors away from bolstering the stock.As stocks traded around $36 during pre-market, it might be hard for CEO Mark Zuckerberg to enjoy any honeymoon he might be taking after marrying his long-time girlfriend privately this weekend.
Now, some analysts and investors are saying the stock was priced too high to begin with, while others are advising to simply ride it out.
"The underwriters completely screwed this up," said Michael Pachter, analyst at Wedbush Securities, according to the Wall Street Journal.
"This thing should have been half as big as it was, and it would have closed at $45."
Even as FB became the most heavily traded IPO of all time, its aggressive IPO price and increased shares could have set the company up for its failure today.
Despite high enthusiasm for trading shares of the social networking site, many cautioned that the $100 billion valuation was too high, especially when earnings and revenue began to show signs of slowing.
Questions about how Facebook would continue to grow and earn revenue came into effect in the week leading up to the IPO, which could have also acted as a sobering reminder to investors. General Motors, for example, pulled $10 million worth of advertising from the site, saying they didn´t see the kind of returns they wanted on the investment.
While FB falls today, Zuckerberg stands to lose money as well. After Friday´s hyped IPO, his estimated net worth rose to $19 billion. Now, the Chairman and CEO could lose nearly $2.2 billion in paper losses.
Though FB isn´t performing well on its second day, analysts say the stock still has value.
“If you went out and spent on Friday, you´re not canceling the order for the Lamborghini just yet,” Martin Pyykkonen, an analyst with Wedge Partners said in a phone interview to Bloomberg.
“For the most part, those with a substantial stake still have plenty of value.”
The difference here, however, is most of those who stand to make the most money for Facebook stock are early investors, Facebook employees and venture capitalists.
Dustin Moskovitz – who started The Face Book with Zuckerberg in their dorm room at Harvard – owns 133.7 million FB shares, now worth $4.5 billion, though down $580 million during today´s poor performance.
Christopher Hughes – Facebook co-founder – owns nearly 22 million shares of FB, according to Bloomberg. Now, his take is nearly $746 million.
While these insiders are getting rich on their millions of shares, individual investors have largely stayed away from FB. Rather than see the stock as a strong investment with signs of continued growth, a poll released last week showed private investors largely saw Facebook as a passing fad, and are therefore cautious to invest.