After shareholders gave historically huge amounts of cash to Facebook, it is starting to look like the company did not do as well on its first day as was expected.
After an IPO, trading is expected to be brisk after the early buyers and hidden investors offload their shares. Meanwhile those who missed out on the IPO ballet rush to buy them at even more inflated prices. This did not happen for Facebook.
The problem was that the company’s sky-high valuation – combined with trading glitches – left the stock languishing near its offering price.
When Facebook shares began trading on Friday it opened 11 percent above the $38 offering price, but after peaking at about $45 slid rapidly at the end of the day to close at $38.23.
That is what is known as a very weak first day and does not bode well. Those hoping for a Facebook halo effect were dragged down. Social not-working gaming giant Zynga fell by 15 percent.
Analysts had predicted shares would climb between 10 and 50 percent which was fairly surprising, given that beancounters do not normally surrender to hype.
According to Reuters, Morgan Stanley, the lead underwriter on the deal, was forced to defend the high $38 price level by buying shares on the open market.
This week the price will come under greater pressure. Our bet is that it will fall slowly over the next months.
As we told the BBC World Business Report on Friday, the problem is that the shares put the value of the company at $100 billion when it only makes a billion a year. Its revenues are slowing down, it has not worked out a way of dealing with mobile, and is generally pretty stagnant.
We thought that a lot of people are going to lose a lot of dosh on Facebook over the next year and should be rather cross.