Thursday, August 16, 2012

Facebook Still Falling on Wall Street


I'm interested in economics mainly from a pschological or historical point of view, and I admit am not an investor of any kind, so from that perspective, it makes me a little proud of the prediction I made back in May when the Facebook IPO was about to be offered to the public:
In my opinion, and I'm not an economist but just an observer of human nature, this IPO may be happening just a little too late. Yes, there will be billionaires who build fortunes by selling out quickly, but some people - probably the small investors again, *sigh* - are going to lose a mint.

All my Posts about the Facebook IPO Here

What I discovered as the Facebook story unfolded was that the offering price of $38 was set way too high to begin with, and there was buyer's remorse right away due to problems with the Nasdaq (see Wall Street Journal video below). So there was a very small window of happiness with the stock which was mostly due to pre-IPO hype. Some buyers wanted to sell but were prohibited for 3 months. That period ended today and what happened ~ they sold off big time, so that Facebook's value fell to a new low.

From Reuters:
More than 270 million shares owned by early investors became available for trade on Thursday after a 3-month curb on sales ended. That's more than half the 421 million shares sold in its initial public offering on May 18.
. . . Analysts say Thursday's frenetic trading offers a taste of what may transpire in November, when many of the social network's employees get to cash in stock awards for the first time.
"An incredible amount, all the shares coming," said Steve Birenberg, president of Northlake Capital Management and portfolio manager for Entermedia Growth Partners, a hedge fund.
. . . The stock, which debuted at $38, fell as much as 7.1 percent to a all-time low of $19.69 before ending the day at $19.87.

Will employees really display a lack of brand loyalty and flood the market with shares in November? I think they probably will. None of it has played out in the market as promised, and the chance for making a killing is gone now. Most predictions for the economy are negative going into next year, so why hold a risky stock? It does worry me that it might happen close to the presidential election but that's unavoidable.

Facebook is still around and millions of people use it every day, but I still believe that it peaked a long time ago and isn't really the gold standard of social media anymore. I'll make another prediction just from my gut - Facebook will drift along sideways for the next couple of years, but probably won't rise above $25 a share again. If I'm wrong - if Facebook revamps with some fabulous new technology and becomes relevant again - I will be the first to admit that I was wrong. But I don't think I'm wrong. It might even fall lower or disappear entirely, but I won't go that far.

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