Facebook shares fell 11 per cent on Monday in just its second day of trading, wiping $11.5 billion off its value amid mounting criticism of how the IPO was structured.
Shares for the world’s biggest social networking site began trading on Friday at $38 but failed to meet high expectations for the launch and closed just 23 cents up by the end of the day. Prices closed on Monday at $34.03 a share.
The Nasdaq Stock Market was hit by technical problems on the morning of the IPO, preventing some investors from confirming their trades.
Facebook, Nasdaq and several investment banks are all facing blame for what has been described as a poorly constructed deal with some claiming the initial stock price was set too high with the number of shares increasing 25 per cent just before the launch. Facebook executives are believed to have played an active role in the initial listing.
Sources familiar to the matter say Morgan Stanley, Facebook’s lead underwriter, stepped in to defend the price after the stock was in danger of dropping on its opening day.
An analyst at Wedbush Securities said: “The underwriters completely screwed this up. The offering should have been half as big as it was, and it would have closed at $45,” according to The Wall Street Journal.
Last week Facebook raised its target price range from $28-$35 per share to $34-$38, expecting strong investor demand.
According to a filing made with the US Securities and Exchange Commission, Facebook’s five main banks Morgan Stanley, JP Morgan, Goldman Sachs, Bank of America Merrill Lynch and Barclays Capital now own $13.86 billion worth of the company’s shares.
Despite the global hype surrounding the IPO, Matein Khalid, fund manager in a royal investment office in the UAE, had predicted earlier this year that it was not a good idea to invest in the social networking site’s IPO.
“The Facebook IPO will culminate in a social media bubble that will then pop with a vengeance and Zuckerberg’s digital empire could fall 60 per cent from its IPO price,” he wrote in an opinion piece for Gulf Business.