May 30, 2012
Facebook Slump Continues As Shares Close Below $29
Shares of Facebook´s stock plunged nearly 10 percent on Tuesday, closing at $28.84, a 24 percent fall since the company´s initial public offering at a price of $38 per share on May 18.
The decline came on a day when most of the market was higher, with the S&P 500 closing up 14.6 points (1.11%) while the Nasdaq was up 33 points (1.18%).
Facebook´s highly anticipated IPO was one of the largest in U.S. history, but has delivered the worst trading performance for its first five days of trading of any offering during the past decade, according to Bloomberg News.
Although part of the slumping stock price has been driven by investor skepticism about the social network, options traders are also bending the price by making bets on the future direction of the shares.
Jon Ogg of 24/7 Wall Street said there was "explosive" trade in Facebook on the first full day options were available, with a "push and pull" among investors seeking "to pick their entry point ahead of time if they are interested in buying Facebook at lower prices."
Peter Cardillo of Rockwell Global Capital said Facebook´s slide was a result of "the combination of bad press and sell options feeding on the market."
"It could be technical, since each time it is making new lows and it feeds on itself until it exhausts itself," the AFP news agency quoted him as saying.
Wedbush Securities said in a note to clients that Facebook´s stock was still spinning from a "messy" public offering, which included technical glitches on the Nasdaq and worries that Morgan Stanley, the lead IPO underwriter, may have lowered its price estimates at the last minute and shared that information with select investors. A number of lawsuits have been filed over the matter.
Wedbush also noted that the number of shares offered by Facebook in its IPO might have simply overwhelmed demand, putting downward pressure on the stock.
Other analysts say Facebook´s falling stock price reflects concerns about whether the company is truly worth its stratospheric market valuation.
But Wedbush analyst Michael Pachter and associates said they remain bullish on the company´s long-term prospects.
"Despite these near-term issues, we expect dramatic long-term revenue growth,” the brokerage said, noting that it was maintaining its $44 per share price target.
“We think that our price target is warranted due to Facebook's huge upside potential for revenue and earnings growth."
Facebook generates most of its revenue by selling advertising on its site. The company took in $3.71 billion in revenue last year, with net earnings of around $1 billion.
"As Facebook enhances the user experience, we expect three things to happen,” Pachter said.
“First, we think that a better experience will lead to a greater number of users; second, we think that a better experience will lead to higher levels of engagement; and third, we think that a greater user base that spends even more time than the current user base will be an irresistible target for advertisers."
Wedbush also cited Facebook´s market dominance as a key factor in future growth.
"Facebook has built a huge moat between it and its competitors, and we endorse [chief executive Mark] Zuckerberg's mission (if not his wardrobe)."
In a related development, the Russian-based social network Vkontake announced it was delaying its planned public offering due to the Facebook misfortune.
In a Twitter message, chief executive Pavel Durov said that Facebook's IPO "has destroyed the faith of a lot of private investors in social networks" and that Vkontake´s IPO "has now been postponed indefinitely."
Despite investors´ weariness over Facebook´s stock, rumors that the social network might acquire Opera Software sent shares of the Norwegian Internet browser company soaring as much as 22 percent on Tuesday.
By the close of trading in Oslo, Opera Software´s shares were still up 19.5 percent on the first day of trading since speculation of a possible Facebook acquisition broke late last week.
If a deal were to go through, it could give Facebook control over Opera´s highly regarded cellphone Web browser, pitting the social network against companies such as Microsoft, Google and Apple.