Facebook Shares Slump Below $29 as Options Trading Starts
Facebook Inc. (FB) shares fell to a new low, extending losses from the worst-performing large initial public offering during the past decade to more than 24 percent.
The stock fell 9.6 percent to $28.84 in New York, below the prior low of $30.94 on May 22. Facebook debuted on May 18 after underwriters sold shares at $38. Facebook options trading began today, with volume for puts exceeding calls by 1.2-to-1, data compiled by Bloomberg show. More than 200,000 puts giving the right to sell traded.
About $25 billion in market value has been erased from Facebook as bearish sentiment built in stock and options markets after the social networking site went public while U.S. equities headed for the biggest monthly decline since September. The company, its underwriters and Nasdaq OMX Group Inc. (NDAQ) were sued last week by investors who say they lost money in the IPO. June $30 puts were the most-active contracts, with volume at 23,723. They were followed by June $34 calls and June $32 calls.
“People are disillusioned,” Matt McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati, said in a telephone interview. He doesn’t own shares of Facebook. “A lot of investors believed the hype,” he said. “In this type of volatile market environment, people are not going to take chances.”
Facebook shares climbed as high as $45 on May 18, when the shares ended the day with a price-earnings ratio of 83.1, making the Menlo Park, California-based company more expensive than 99 percent of Standard & Poor’s 500 Index stocks.
MF Global
The IPO, which set a record for technology companies by raising more than $16 billion, produced the worst five-day return among the 10 largest U.S. deals of the past decade. The 13 percent loss through May 24 exceeded the 10 percent drop by MF Global Holdings Inc. in its first five sessions.
The stock plunge has also pushed the purchase price for photo-sharing site Instagram Inc. below the $1 billion that Facebook offered last month. Facebook is paying $300 million in cash plus about 23 million shares of common stock to acquire Instagram. The deal is now valued at about $963 million.
Facebook and Morgan Stanley, its lead underwriter, faced criticism for boosting the number of shares sold in the IPO by 25 percent to 421.2 million in the days before the deal. They also increased the asking price to $34 to $38 from $28 to $35.
The first day of trading was disrupted by the “poor design” of Nasdaq OMX’s software for IPO auctions, Robert Greifeld, the chief executive officer of the exchange operator, said on May 20. The malfunction also prevented Nasdaq OMX from sending messages to brokerages confirming that clients’ orders went through.
“Investors are incorporating the risks embedded in the stock,” Brian Wieser, a senior analyst at New York-based Pivotal Research Group LLC, said in a telephone interview today. He has a sell rating on the stock and a $30 share-price estimate. “A lot of people are trying to trade the stock on the basis of those expectations. Options will be a very robust marketplace with respect to Facebook.”
To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
Facebook Shares Slump Below $30 as Options Trading Starts
Brendan Smialowski/AFP/Getty Images
Facebook went public as the equity index was heading for its biggest monthly decline since September.
Facebook went public as the equity index was heading for its biggest monthly decline since September. Photographer: Brendan Smialowski/AFP/Getty Images
May 29 (Bloomberg) -- Brian Wieser, a senior analyst at Pivotal Research Group LLC, talks about the outlook for Facebook Inc. He speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)
May 29 (Bloomberg) -- Bobby Heller, an options trader at On Point Executions LLC, talks about options trading in Facebook Inc. shares. Facebook fell to a new low, extending losses from the worst-performing large initial public offering during the past decade to more than 23 percent. Heller speaks with Matt Miller on Bloomberg Television's "Bottom Line." (Source: Bloomberg)
May 29 (Bloomberg) -- Tom Forte, director and senior research analyst at Telsey Advisory Group, talks about the outlook for Facebook Inc. and ways the social networking company can increase its mobile advertising revenue. Forte speaks with Adam Johnson on Bloomberg Television's "InBusiness." (Source: Bloomberg)
May 29 (Bloomberg) -- Walter Isaacson, biographer of late Apple Inc. co-founder Steve Jobs and chief executive officer of the Aspen Institute, talks about Mark Zuckerberg, chief executive officer of Facebook Inc., and the social networking company's stock performance. Isaacson speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
May 29 (Bloomberg) -- Bloomberg's Betty Liu reports that Facebook shares reached a new low, dipping past the previous low of $30.94 in early trading. She speaks on Bloomberg Television's "In The Loop." (Source: Bloomberg)
Facebook Shares Slump Below Previous Low of $30.94
Shen Hong/XINHUA/Landov
Facebook and Morgan Stanley, its lead underwriter, faced criticism for boosting the number of shares sold in the IPO by 25 percent to 421.2 million in the days before the deal.
Facebook and Morgan Stanley, its lead underwriter, faced criticism for boosting the number of shares sold in the IPO by 25 percent to 421.2 million in the days before the deal. Photographer: Shen Hong/XINHUA/Landov
Facebook Shares Slump Below Prior Low of $30.94
Scott Eells/Bloomberg
The Facebook Inc. logo is displayed at the Nasdaq MarketSite in New York.
The Facebook Inc. logo is displayed at the Nasdaq MarketSite in New York. Photographer: Scott Eells/Bloomberg
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