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Many said that the Facebook (Nasdaq: FB) IPO would be different from its recent social media stock predecessors. So far the stock isn’t behaving much differently.
On just its second trading day, Facebook shares have already fallen well below their offer price of $38. After rising as high $45 on Friday, Facebook shares have now dipped to little more than $34 a share – a 24% drop-off from the stock’s peak, and 10.5% below the IPO price.
Part of the problem may have been that the stock was overpriced. The initial price range was supposed to be between $28 and $35 per share. But about a week before its IPO, Facebook bumped the range up to $34-$38 per share. The stock eventually priced at the high end of that more ambitious range.
But the bigger problem may have been with the Nasdaq exchange. A malfunction in the exchange’s design for processing order cancellations delayed public trading of Facebook shares by 30 minutes. More than 570 million shares still changed hands throughout the day despite the delay. But Nasdaq’s technical glitch seemed to leave a sour taste in a lot of trader’s mouths, and even prompted a formal apology from the tech-heavy exchange on Sunday.
That Facebook shares only gained 23 cents on its IPO day and have fallen $4 more in its second day of trading harks back to the ill-fated IPOs of fellow social media stocks Groupon (Nasdaq: GRPN), Pandora (NYSE: P) and Zynga (Nasdaq: ZNGA).
All three of those stocks debuted to considerable – though not nearly Facebook-level – hype in the past year. And all three dropped below their IPO prices within a matter of weeks. Pandora and Zynga fell below their IPO prices within a matter of days.
None of those three companies are profitable, however. Facebook made $1 billion last year. The stock wasn’t supposed to fall this far this fast.
Hype was enough to make Facebook the third-largest IPO in U.S. history, with $16 billion raised. That boosted the company’s valuation to $104 billion when it began public trading – or 104 times earnings.
Now the social network is getting a hard dose of reality.