Facebook shares slide prompts IPO price claims

By PERRY GOURLEY
Published on 22/05/2012 00:00

SHARES in Facebook fell sharply below their flotation price yesterday and left some investors who bought into the company on Friday nursing heavy paper losses.

The stock fell by more than 12 per cent in early trading to $33.66, representing a fall of almost a quarter from the high of $45 seen during its market debut on Friday.

Much of the fall was attributed to support from the underwriters of the initial public offering (IPO) being withdrawn following the first day of trading.

There had been reports that lead underwriter Morgan Stanley stepped in repeatedly on Friday to prevent the stock from falling below its offer price of $38.

The company’s shares continued to see huge volumes traded yesterday with more than 52 million changing hands in 15 minutes. Nearly 581 million shares had been traded on Friday during the five hours the stock was on the market.

Yesterday’s share price fall prompted claims that the company had been priced too highly.

Analysts at New York-based Pivotal Research Group yesterday issued a sell rating on the shares and said they believed they were worth $30.

“It’s priced for perfection and that’s clearly implausible. While we like the company, we’re troubled by investors’ perception of the risks,” said analyst Brian Wieser.

Meanwhile, Nasdaq has said it will change its procedures for IPOs after the Facebook debut was beset by a series of problems including traders not knowing for hours whether their trades had been completed.

Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey, said: “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.”