The social net working giant Facebook (FB) which just went public on the Nasdaq saw its share price falling below its IPO price in the second trading day on Monday. Facebook stock opened at $36.5, then lost support and fell to the intraday low of $33, and eventually gave up $4.20 to report at $34.03. The closing price was far below the $38 Facebook IPO price, making investors who bought the shares in the Facebook IPO be trapped. On Tuesday, Facebook stock price plunged 8.90%, the second consecutive day loss since the listing. Market sent a number of critical voices, such as the IPO scale is too large, the original shareholders reduced a large number of shares and the Facebook IPO price is too high. Read more about the Facebook IPO price.
More-expected issue scale
Some investors pointed out that Facebook and its underwriters over-estimated the market demand, and the financing amount was too large. Facebook announced to expand the IPO scale by 25% last Wednesday, the number of shares offered added from 388 million to 421.2 million. The IPO price range increased from $28-$35 to $34-$38. The final Facebook IPO price was set at the ceiling of the new range and the IPO scale expanded to $16 billion, becoming the largest technology IPO in history.
After Facebook had expanded the issuance scale, many investors got shares of more than-expected. This was rare among the past IPOs, making the investors alert.
Analyst complained that the underwriters had completely screwed up the matter. The scale of the Facebook IPO should have been only half of the actual amount, so Facebook stock would not fall below the issuing price.
The original shareholders cashed in too much
It is worth mentioning that the original shareholders cashed in a lot during the Facebook IPO. About half of the proceeds were raised from the sale of the shares offered by the original shareholders. These early institutional investors including Goldman Sachs and Tiger Fund, substantially increase the number of shares offered in the public offering.
The statistics show that Russian investor DST reduced 40% of the shares held by it during the IPO, significantly higher than the previously expected 23% reduction plan. Goldman Sachs and Tiger Fund both sold their 50% of shares versus the previously planed 23% of Goldman Sachs and 7% of Tiger Fund.
Research institution Dealogic pointed out that the shareholders of U.S. Internet giant Yahoo and Amazon did not substaintially sell their shares in during the IPOs in the 1990s. During the Google IPO in 2004, the proportion of shares sold by the original shareholders was 28%. Analysts pointed out that the massive reduction during the Facebook IPO may indicate the sellers had believed it was a good time to take profits.
Valuation is not cheap
Many analysts have criticized the level of FB stock valuation, complaining Facebook’s valuation is not cheap and too high compared to other technology companies.
Research institution FactSet research pointed out on the basis of a stock price of $34, the price to forward twelve months earnings ratio of Facebook is 57 times while Google only trades 14 times.
An analyst said in a research report that as Facebook’s revenue and profit growth slow down in 2012, the current valuation level of Facebook will not be attractive.
Also read: Facebook IPO may become the worst large IPO since 2007.