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.

Facebook Falls Again - Updated

Facebook Stock is selling for $28 a share this afternoon. I will update the final price when the markets close at 4:30 EST.


Some predict it will bottom out at $25, but I think that might be optimistic. Of course it might bottom out today at $25, but what about the rest of the week? Just kidding - I really have no idea how this will end. I'm watching it fall for the entertainment value only. :)

Reuters reports:

As Facebook shares dipped below $30 in afternoon trade, buying picked up in the August $29 strike puts.
Put options, generally considered bearish bets, give the holder the right to sell shares at a specific price by a certain date, while calls, generally considered bullish bets, give the holder the right to buy shares at a specific price.

 Update: Yep - ended the day at $28.84 per share.

How Bad a Day Did Facebook Have? 

 So bad that a short-sale circuit breaker was tripped because the stock price kept falling. Circuit breakers kick in when a stock drops more than 10 percent from the previous session's closing price. On the day, Facebook fell 9.6 percent to $28.84, and since the company went public earlier this month, the stock has plunged more than 24 percent.

Facebook Sued - Morgan Gives Refunds - Refunds?!

Wow - things are getting more "Zucked Up" all the time!

From CNN

Facebook shareholders have filed a lawsuit against the social network, CEO Mark Zuckerberg and a number of banks, alleging that crucial information was concealed ahead of Facebook's IPO. The lawsuit, filed in the U.S. District Court in Manhattan on Wednesday morning, charges the defendants with failing to disclose in the critical days leading up to Friday's initial public offering "a severe and pronounced reduction."

Facebook defended themselves on Wednesday saying they "believe the lawsuit is without merit and will defend ourselves vigorously."

The report, and now the lawsuit, raises questions about whether Morgan Stanley, one of the underwriter companies that handled Facebook's IPO, or other banks knowingly offered certain investors privileged information that should have been made public. Other underwriters targeted by the lawsuit include Barclays Capital, Goldman Sachs, JPMorgan Chase and Merrill Lynch, a unit of Bank of America.

And Morgan Stanley Bank is adjusting prices for some investors in case they paid too much for Facebook stock! As the used-car-salesman father exclaimed in the movie Breaking Away: Refunds?!!! OMG.

WSJ Marketwatch has the story:

In a memo sent Wednesday to the nearly 17,200 financial advisers of its Morgan Stanley Smith Barney retail brokerage joint venture, the firm says "in order to ensure best execution, we expect there will be a number of price adjustments." The securities firm said, "the largest adjustments will be processed over the next several days and the remaining adjustments will be completed as quickly and as thoroughly as possible."

In the memo Wednesday, Morgan Stanley said "many of the remaining executions have been processed and are now appearing in clients' accounts," though the firm said a "very limited number of orders are pending" and it's still reviewing the appropriate action with its trading partners. Morgan Stanley didn't specify how many orders haven't been executed or how many are still pending.

Facebook Faceplant Causes Facepalm

I hate to say "I told you so," but the other day I wrote that I was underwhelmed by the Facebook IPO and thought it might fall apart quickly in spite of all the media hype and high-profile buyers such as Bono of U2.

And looks like I was right - headline after headline. I don't pretend to be an economist and have no money in the stock market and probably never will, but I think I can spot a trend. Facebook is not an up-and-coming commodity anymore. It's been around too long to have an IPO, and not everyone is as thrilled about Facebook as they were about Google.

Of course, no one out here in the 99% real world should feel sorry for these new billionaires. But there are problems with the fact that Facebook employees are stuck with the stock for many months and are barred from selling quickly while the price is still decent. And what about investment portfolios that included Facebook as a sure thing? We probably won't know until the bottom drops out.

WSJ: Facebook Slides Again

Facebook's stock was recently trading down 4.5%. The stock lost 11% on Monday as more investors and analysts began to question the size of the company's public debut, which initially valued the company at $104 billion. The company is now worth about $90 billion, based on Tuesday's stock price.

"Dreams of Riches"

Facebook Provides Cautionary Tale

"It was the casino effect a little bit here," said Steve Cordasco, a registered investment adviser with Philadelphia-based Cordasco Financial Network, which oversees about $700 million in assets. "It's good for the average investor to realize that you just don't know, that the experts just don't know."
Mr. Cordasco, who referred to Facebook's debut as a "face-plant," had advised one qualified investor who wanted to put a large amount in the stock not to buy on the first day of trading. The investor took his advice and bought Mr. Cordasco a beer on Friday as they watched Facebook lumber to its close.

 Bloomberg: Analysts Who Shunned Facebook Are Heroes

Analysts who broke away from the herd and told investors to avoid Facebook Inc. (FB), the biggest initial public offering ever by a technology company, are looking like heroes after the stock plunged.
While bulls forecast benefits as companies shift advertising to the Internet, Wieser said Facebook’s price is too high and the path to growth unclear. “There’s always a risk of buying into excessive hype, using rules of thumb for valuation that are divorced from fundamentals,” Wieser, a New York-based analyst at Pivotal, said in a telephone interview yesterday. “There are many things that really speak to the uncertainty investors should be incorporating when they’re thinking about Facebook.”

SFGATE: Facebook Hedge Funder Furious

We just got off the phone with a hedge fund manager who says his fund owns Facebook stock "in excess of a $100 million.
. . . His allegations/claims/opinions:
---->NASDAQ knew it systems were broken before the Facebook IPO, and instead of aborting the offering and facing huge embarrassment, it went ahead. Traders then lost hundreds of millions of dollars as they tried to buy and sell Facebook stock without getting confirmation that their trades had been executed.
---->NASDAQ made the problem worse on Monday. NASDAQ told traders who thought they had sold their Facebook stock on Friday – but had actually not – to fill out a form by noon. This form asked traders to list the price at which they thought they had sold their stock and they price at which they actually had. Problem was: Many of these traders had not yet actually sold their stock. Because the form required an actual selling price, many did, dumping tens of millions of shares of Facebook stock on the market, and sending the stock price plummeting.

The Facebook IPO ~ Boom or Bust?

Label me underwhelmed by all the hype surrounding the Facebook IPO which started trading Friday on the Nasdaq. Built up into the Holy Grail of IPOs by the media analyists, they had to back-peddle by Friday afternoon when the stock didn't live to expectations. Duh - even a lay-person like me could have predicted that. Sure, investors still made billions, but as we see with Morgan Stanley, wax on, wax off - they can turn around and lose billions, too. And the only reason the price stayed above $38 a share was that the "underwriters" (banks) propped them up by buying their own product. So the whole thing feels rather shaky, and I wonder how strong the selling will be on Monday?
From Wall Street Journal:

The stock had been widely predicted to soar on its first day. Instead, up until the closing moments of the trading session, Facebook's underwriters battled to keep the stock from slipping below its offering price of $38 a share. Such a stumble would have been a significant embarrassment, particularly for a prominent new issue like Facebook, the most heavily traded IPO of all time.
In the end, the bankers succeeded. When trading on Nasdaq ended at 4 p.m., the social network's stock was up just a hair, 0.6%, at $38.23. . . .
Facebook's price began falling almost immediately after shares began trading. It is unclear exactly when Morgan Stanley stepped in, but traders said that the price movements throughout the day, with the shares occasionally touching the IPO price but never crossing below it, suggested the firm was active throughout much of the session.

David Callahan of Demos points out in the following video that while Facebook is generating lots of money, it is not generating lots of jobs. The wealth from the FB IPO is going to be held by the 1% and not spread around to the 99%. Yes, the Henry Ford assembly-line days are gone, as Maria Bartiromo squeaks with mock-outrage, but that doesn't change the fact that billionaires could find ways to spread the wealth around more effectively (if they cared, and there's no evidence that Zuckerberg cares about society at all).

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I guess I'm cynical, but I see the IPO moment as the beginning of the end for FB. Rumor is that eventually Zuckerberg wants to charge people for business related pages and "extra security" that is sadly lacking now. As Netflix ticked off loyal users, so does Facebook, which touts security then nags people in a creepy way to share everything from phone numbers to geographical location. Zuckerberg apparently just wants to data-mine the world and then sell the details of our lives to the highest bidder. Plus, everyone knows that employers, schools, and even the police are using FB as a way to spy on people or play gotcha, so people constantly try to decide whether to keep pages open or close them down, and it's really not worth it.


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.

Talking Points Memo caught the Roller Coaster Feeling on Friday