Sunday 19 November 2017

Facebook shares drop below $38 issue price as support from banks fades

Mark Zuckerberg and Priscilla Chan are seen in this photograph taken on their wedding day. Photo: Reuters
Mark Zuckerberg and Priscilla Chan are seen in this photograph taken on their wedding day. Photo: Reuters

FACEBOOK shares fell more than 10pc below their $38 (€30) issue price shortly after trading started today, as support from banks which underwrote the initial public offering dissipated after Friday's market debut.

The shares were down as much as 10.5pc at $34.22 in early afternoon trading - they closed at $38.23 on Friday.

By contrast, Apple shares climbed 1.5pc to $538 today.

Social networking company Facebook's stock market debut was marred by a shaky opening on the Nasdaq which will be reviewed by the SEC, and a falling share price which forced lead underwriter Morgan Stanley to defend the $38 price level by purchasing shares on the open market.

Those who bought Facebook shares on Friday now face an anxious few days, amid reports that hedge funds are aiming to profit from any weakness in the social networking site’s shares price.

It is feared demand for the shares may also be hit by Europe’s deepening debt crisis, which has sent investors fleeing for less risky investments such as US, UK and German government bonds in recent days.

The declines will hit the vast fortunes made by founder and chief executive Mark Zuckerberg and investors including Bono.

After months of building hype, shares in Facebook closed just 0.6pc higher on their first day’s trading on New York’s Nasdaq.

Facebook and its bankers, led by Morgan Stanley, last week raised the number of shares they were selling to 421m and eventually sold them at $38 - the top of the range that had been set out.

While that helped Facebook and some of the early investors in the company pocket $16bn, analysts say it was an aggressive strategy that has now leaves the shares vulnerable.

“Facebook shares will drift lower from here,” said Michael Pachter, an analyst at Wedbush Securities. “$16bn of shares in one company was too much for the market to absorb on one day.”

Facebook founder and chief executive Mark Zuckerberg, who married his long-term girlfriend Priscilla Chan over the weekend, now faces intense pressure to convince shareholders that he can convert the site’s 900m users into growing profits.

Days before its flotation, the company admitted that it had yet to generate meaningful revenue from users accessing Facebook over smartphones, which the future growth in users will come from.

Hours after the shares closed on Friday, the company received its first “sell” recommendation from analysts at Pivotal Research Group in New York who believe the shares are overvalued.

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