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On The Third Day, Facebook’s Stock Falls Again

On The Third Day, Facebook’s Stock Falls Again

The bloom has quite fallen off the Facebook rose: On Tuesday, its third day of trading, the social media giant’s stock fell more than 18% from its initial share price of $38, closing at $31 and indicating that investors are quite quickly realizing that the company’s initial valuation may be “out of whack.”

To add to the controversy about Facebook’s debut as a publicly trading company, regulators from the US Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) said they may open a probe of Morgan Stanley as to whether an analyst shared negative information about Facebook with some institutional investors prior to the initial public offering last Friday, May 18. Morgan Stanley was the lead underwriter for Facebook’s IPO; Bloomberg says the analyst reportedly “lowered a Facebook revenue forecast after the social-networking company said growth in mobile products could hurt its business.”

Morgan Stanley says that it was indeed “in compliance with all applicable regulations,” according to the BBC.

Further clouding Facebook’s IPO is a potential class-action suit filed against the Nasdaq stock exchange by Maryland resident Philip Goldberg, claiming that investors lost money due to technical problems which delayed Facebook’s market debut by a half hour. This acknowledged “glitch” meant that orders to buy or sell shares were disrupted.

So are the bankers to blame for Facebook’s sputtering start?

CNET’s Roger Musil argues that Facebook has no one to blame but itself:

…the underwriters cut their estimates because a Facebook executive instructed them to. A source tells Henry Blodget at Business Insider that the estimate reduction was then “verbally conveyed to institutional investors…but not to smaller investors.”

As Blodget points out, this “selective disclosure” posed a significant disadvantage to small investors who bought the stock with faith in the information the company the company was legally required to publicly disclose. Blodget — a former equity research analyst — also suggests that such secrecy may violate securities laws.

Also on CNET, Roger Cheng points out another Achilles heel for Facebook, its business model:

Facebook hasn’t quite figured out its business model and how to fully take advantage of the large audience it has captured. More worrisome to investors is Facebook CEO Mark Zuckerberg’s insistence that profits take a back seat to the user experience, an admirable goal for consumers, but a scary prospect for shareholders.

What’s becoming more and more clear is that Facebook does not yet seem to know how to capitalize on its approximately one billion users, a problematic state of affairs for its investors — though not necessarily for all those users, happily using Facebook’s site and, as happily, doing so without clicking on a single sponsored story.

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54 comments

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4:13AM PDT on May 28, 2012

I have no intention of signing up for "timeline" and if it is forced on me, my FB account WILL be closed. I DO have an issue with anyone knowing what I'm doing or where I am unless it's my choice to tell them. I guess some people have no problem with the entire world knowing what they're doing at every moment. I do.

1:53AM PDT on May 28, 2012

I don't understand why "time line" is such a big problem... it's just a different lay-out. Comments "history" was previously accessable as well.

8:23PM PDT on May 26, 2012

Dianne L-Timeline is something that you could sign up for at your leisure or wait for it to be FORCED on you, which it was on me finally a week ago. It is something that came about simply Mark Zukerberg is too cheap to pay the money to keep it private for it's users. And for those of you that prior to Timeline had the max privacy settings as I did, make sure that you find out how to restore those same strict privacy settings or you are totally public, friends or not.
I won't comment on the business/financial aspects of the stock falling a third day in a row, but I will say that I have no sympathy for Zukerberg, who stole the idea for Facebook from friends/roomates.

1:31PM PDT on May 24, 2012

Well you may not be aware of Facebook, but you might want to look into whatever mutual funds you participate in. They may well have invested in FACEBOOK, and lost money for your mutual funds. Nothing happens in a vacuum, Everything is interconnected, so whatever goes on on Wall street does infact have an effect on YOU!

11:46AM PDT on May 24, 2012

I never understood - and never will - what all this Facebook hype is about... it's a lot of hot air

3:59AM PDT on May 24, 2012

An another example money trying to make money not production. There was too much hype for this.

2:18AM PDT on May 24, 2012

Dennis, before you criticize ME for my comment, you might take your own advice, and start with reading what you are replying to. I asked WHAT movie, and we're talking about Mark Zuckerberg, who, as far as I know, never renounced his U.S. citizenship.

". If you want to share every detail of your life with friends and family, email them"......what gives you any idea that is not what I actually do? Where did I say I even use Facebook? I do, but certainly don't share any personal information in there that isn't available to anyone by checking "vital statistics". I'm very much aware that some people live on that site, as well as "twitter", and they have a new service called "timeline" or something. I don't "twitter", never have, never will, nor did I sign up for the "time line" thing. That's way TOO MUCH "info". Home invasion robbery, anyone? How about I.D. theft?.



2:01AM PDT on May 24, 2012

"I personally don't trust FB or Juckerjerk"..........Debra, disliking an online "social networking site" (and I don't like or use FB myself much) is one thing, but why call it's creator such names? Are you merely jealous because he is a ga-zillionaire at the age of 28? He made that money legally and honestly. Live with it and grow up.

12:57AM PDT on May 24, 2012

Thanks for the article.

10:12PM PDT on May 23, 2012

Yup they set FB up and stabbed them in the back. A very nice example though of how un-free our free market system is. And I'm not a fan of FB at all.

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