Monday, May 21, 2012

Facebook Stock Falls 11% in Second Day of Trading


The stock for Facebook is an overblown hype. I feel sorry for the investor, who believed they could make money on a social network website. There are people who compare Facebook to Obama because the social network website and the president believe they are bigger than life. It is nice to see that the people still make the shots. The investor realize Facebook is a joke and an epic failure. Likewise, the American voter will say the same thing about the president in November.

(WSJ) NEW YORK—Facebook Inc. (FB -10.99%) shares skidded on their second day on the stock market to well below their offer price, leaving some investors who bought in the social network's public offering in the red and raising questions about whether the company and its lead banker, Morgan Stanley, MS -1.20% botched the deal.

The shares, which managed to stay a hair above $38 on their Friday debut with the help of Morgan Stanley, on Monday lost their footing, dropping to as low as $33 before closing down $4.20, or 11%, at $34.03. It wasn't clear what role if any Morgan Stanley was playing in the stock's trading on Monday.

Historically, the ideal first-day gain for an IPO is 10% to 15%, an amount seen as a way of compensating investors for the risk of buying into a new stock. Stocks that barely eke out a few percentage points or end the day flat with their offering price aren't considered successful debuts by buyers, and anything below the price can mean an instant loss.

At $34, Facebook would have a price/earnings ratio, a measure of how expensive or cheap a stock is, of about 57 times projected earnings for the next 12 months, according to FactSet research. That still is a much richer valuation than other tech companies, such as Google Inc., GOOG +2.28% at 14. Those ratios mean a Facebook share is more than four times as expensive as a share of Google.

The slump is likely to turn up the heat on Facebook to boost its performance by generating more revenue from its user base, which includes more than 900 million active users. The company's earnings fell 12% in the first quarter amid surging expenses.