The Decline and Fall of Facebook’s Empire

Shares of Facebook (NASDAQ:FB) closed almost 11 percent down after the stock’s second day of trading yesterday, leaving unanswered questions about the company’s massive valuation. Facebook closed at $34.03, down $4.20 from Friday’s closing price of $38.23 and its initial offering price of $38. Facebook had been valued at $105 billion in the market on that price. Today’s closing price values Facebook at a $93 billion market cap.

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A mix of technical problems at the Nasdaq stock market that led to uncertainty as well as cooling of investor enthusiasm had meant that the IPO on Friday didn’t have as much of a pop as had been predicted. There were reports that the company’s underwriting banks had tried to prop up shares repeatedly on Friday to keep the price above the $38 mark. It was unclear whether Morgan Stanley, the main underwriter, had stepped in again on Monday.

Nasdaq’s chief executive Robert Greifeld apologized for the embarrassing error that he said was brought on by the huge volume of trading, but added that it had not impacted the stock price.

Many, including analyst firm BTIG, have been worried about the social network’s decelerating growth and advertisement monetization capabilities. “Facebook’s IPO priced at a level well above where we foresaw compelling 12-month returns,” BTIG analyst Richard Greenfield said in a research note on Monday. With revenue and earnings growth decelerating this fiscal year, “we find Facebook’s current valuation unappealing.”

“Investors are increasingly aware of the risk embedded in the stock price,” Pivotal Research Group’s Brian Wieser told Reuters. “There are real concerns about growth and advertisers’ frequent lack of certainty how best to use Facebook, along with rising costs and ongoing acquisition risk.”

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