Facebook stock dives on second day
updated 04:40 pm EDT, Mon May 21, 2012
Bankers under fire for record-setting IPO
After a shaky first day on the NASDAQ index on Friday, Facebook stock on Monday took a dive into the red as most tech stocks showed modest gains. FB shares closed at $34.03, an 11-percent drop from the $38 starting price for the record-setting IPO. The stock closed a few cents over the starting price on Friday, however the valuation was said to have been artificially inflated by underwriters reacting to an immediate falloff.
Technical issues were partially blamed for Friday's troubles, as traders faced uncertainty amid failed or delayed transfers, however the situation on Monday has been viewed by some analysts as confirmation that Facebook and its banking partners, primarily Morgan Stanley, had overvalued the stock.
Just two days ahead of the IPO, the companies decided to increase the number of shares to be sold by nearly 25 percent to 484 million. Many large investors are said to have subsequently received more shares than they expected, according to a Wall Street Journal report (sub. required).
Even before trading began, analysts pointed out that Facebook's price-to-earnings ratio, a common metric used to compare stock valuation to actual income, was significantly larger than that of other tech giants. Further adding to concerns, Facebook showed a drop in income for the first quarter of the year.
Facebook shares have remained relatively flat in early after-hours trading, losing just $0.17, however performance for the rest of the week remains unclear.
Fresh-Faced Recruit
Joined: Nov 2008
It appears as though Facebook
shares were also being propped up today. They should let the stock sink to a natural level and work from there. It should settle around $25 to $30. What's the point of trying to hold the stock up if it's not worth the current price.