Facebook Inc (NASDAQ:FB) debuted trading earlier in May at an initial price of $38. After the first full week, Facebook has lost 16% of its value as investors are not buying into the hype around the company. The good news is that this Facebook flop may suggest that another tech bubble is highly unlikely, even as social media has bright future.
Facebook Inc (NASDAQ:FB) was a chance to get more investors back into the market. Most of the “mom and pop” investors, or retail investors, have been on the sidelines since the 2008 financial crisis. Facebook Inc (NASDAQ:FB) was the chance for these retail investors to dip their toe back into the market. Unfortunately, the much anticipated IPO, decided to implode which gave the newly-returned retail investor some big losses.
The reason that we did not get the bounce that everyone thought we were going to get was because the underwriters saw the demand for shares of Facebook Inc (NASDAQ:FB) during the company’s road show and raised the initial price and float of shares. Unfortunately, this act alone made big fund managers uneasy and ultimately turn their backs on the much anticipated IPO. And in order to get the bounce that everyone was looking for, you need to have institutional buyers with lots of money, buying blocks of shares.
There were also some external problems which didn’t do Facebook any favors. The stock was supposed to begin trading just past 11am on its IPO date, however the first sale was delayed over 30 minutes due to a mechanical error at the Nasdaq. In fact, the volume of shares that were in demand at the start of trading was too much for NASDAQ OMX Group, Inc. (NASDAQ:NDAQ)’s system. Some traders who placed trades early in its trading day never received a trade confirmation. Needless to say, all of that buying as the stock was hitting its highs for the day were never filled which made the stock run out of steam and drop.
Morgan Stanley (NYSE:MS) was the main underwriter for this IPO. Unfortunately, they are being sued as well by investors who say they were misled on the stock. As pressure built against Morgan Stanley, it came out that analysts at the investment bank “quietly” downgraded Facebook during the company’s road show. This has the financial world buzzing with the possibility of the government stepping in and investigating further.
Overall, if you were able to avoid Facebook Inc (NASDAQ:FB) and sequentially 16% losses, you did good. This just proves my belief that retail investors should not chase high flying IPOs.