Why Did Facebook Shares Feel the Pain Today?

Facebook (NASDAQ:FB) shares tumbled 11 percent in trading on Monday to closed at $34.03, below the $38 price for the stock’s initial public offering. Not helping was analyst firm BTIG’s decision to launch company coverage at Neutral, in line with its earlier comments that it was worried about the social network’s decelerating growth and advertisement monetization capabilities.

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“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. With revenue and earnings growth decelerating this fiscal year, “we find Facebook’s current valuation unappealing.”

The drop is a big setback for Facebook, which opened for public trading on Friday as the most heavily traded IPO of all time. Investor interest was extremely high for the company’s stock in the days before the start of trading, leading to bankers on the deal increasing both the stock price and number of shares ahead of the offering, hiking the latter to 421.2 million. According to experts, the overly aggressive IPO price and the increase in the number of available shares are now contributing to the fall.

“The underwriters completely screwed this up,” Wedbush Securities’ Michael Pachter told Wall Street Journal. “This thing should have been half as big as it was, and it would have closed at $45.”

On Friday, there were reports that every time Facebook’s (NASDAQ:FB) shares touched the $38 IPO price, underwriters including Morgan Stanley kept propping up the company’s stock. Shares that day finally closed just 23 cents higher.

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“The insiders made a ton of cash, but the investors who are probably Facebook users lost a lot of money, and it’s going to affect their impression of the company,” Enderle Group’s Rob Enderle told WSJ.

There is huge pressure on Facebook (NASDAQ:FB) to start monetizing its more than 900 million active users while staying free of regulatory censure. The company’s earnings fell 12 percent in the first quarter as marketing expenses grew, but ad revenue fell. The company said in a regulatory filing earlier this month that “seasonal trends” were responsible for the falling revenue.

Facebook had dragged down other Internet stocks with it on Friday, including Zynga (NASDAQ:ZNGA), LinkedIn (NYSE:LNKD), Groupon (NASDAQ:GRPN), and Pandora (NYSE:P). Groupon and Pandora rebounded to close Monday in the green, whereas LinkedIn, Zynga and Facebook still lagged…

Investing Insights: Facebook Shares Plunge Below This Critical Price Point.