NEW YORK: Facebook shares plunged almost 12 percent below their IPO price in early trade on Monday, as early buyers sought to cut losses during the stock's first full day of trade.
An hour and a half after the market opened, the shares were changing hands at US$33.67, a 11.9 percent discount from the US$38 initial public offering price, which made Facebook the second largest US IPO of all time.
"I think that the underwriters convinced Facebook to offer too much stock," said analyst Michael Pachter of Wedbush Securities.
"The market didn't have sufficient appetite for the number of shares offered."
Facebook shares seemed to find a floor at US$33.00, as US markets were generally higher.
Underwriters had expanded the Facebook offer to 421 million shares and raised the price just days before the IPO.
Listings are usually preceded by an elaborate dance, as underwriters and firms try to manage expectations.
Nevertheless the eight year old company raised US$16 billion in an issue which ultimately valued it at US$104 billion, making it the third largest tech firm after Apple and Google.
On Friday the shares hit the market and rose as much as 18 percent before falling back to the issue price, where underwriters sought to prop it up.
It never dropped below US$38, and held that line in after-hours trade over the weekend.
But the support caved in at the opening on Monday.
Other analysts contended that the cool response to what was billed as the hottest public stock offering in years showed that investors have learned from the folly of dot-com boom days and are gauging the social network's potential to turn its popularity into profit.
Market trackers have reported that people are much more likely to click on ads at Google than at Facebook.
The day before the IPO US auto giant General Motors said it would no longer advertise on Facebook because it lacked impact.
"The marketing community is increasingly recognising that Facebook is of very limited value as a marketing tactic," said Pace University business school professor Larry Chiagouris.
"The best advice to investors is to pass on this one," he said. "The best advice to marketers is to limit spending on Facebook until it can prove it returns meaningful results."
So far the company has to prove it can profit from the turn of many Facebook users to mobile phones, where the screens are too small to easily accommodate advertising.
"Management cannot sing and dance around the key issues," said Global Equities Research managing director Trip Chowdhry. "How is Facebook going to monetise mobile?"
The company's focus has clearly turned to this challenge.
Facebook's first day as a publicly traded company ended with news that it had bought year-old San Francisco startup Karma, which runs a service that lets people send gifts to friends from smartphones.
And in the weeks before the IPO, Facebook closed a billion-dollar stock-and-cash deal to buy the start-up behind hot smartphone photo-sharing application Instagram. - AFP
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