Shares of Facebook Inc. (FB: Quote) tumbled more 11 percent in its second day of trading on Monday and fell below the social-networking company's initial public offering price of $38.
Shares of the Facebook began trading for the first time on Friday. The much hyped IPO originally had priced at $38 per share, which was at the top end of the company's estimated price range of $34 to $38 per share.
But Facebook's debut on Friday exposed the technological glitches that companies may face when trading first time on the Nasdaq stock market. Technical issues delayed the opening by about 30 minutes.
After opening notably higher, shares of Facebook fluctuated over the course of the session on Friday, eventually ending the day up by just 0.6 percent. The Facebook IPO's lead underwriter Morgan Stanley (MS) reportedly moved to prop the company's stock price on the first day of trading.
According to reports quoting Robert Greifeld, chief executive of Nasdaq OMX Group Inc., the main problem arose from the trading-system's design for processing order cancellations. Despite attempts to fix it ahead of the deal, the problem persisted.
The not so impressive opening of the IPO could also be linked to to Facebook's high valuation, General Motors' withdrawal on ads, and the current soft markets across the globe.
Facebook's IPO, the largest ever for an internet company, raised $16 billion, giving it a market valuation of $104 billion, higher than that of Yahoo, Dell, Cisco, Visa, Amazon.com and HP. However, the fall in the stock price on Monday caused the company's market capitalization also to drop to $93 billion.
The drop in Facebook's share price has caused about $2.1 billion of paper losses to Facebook's founder, chairman and chief executive Mark Zuckerberg.
The decline in Facebook's share price likely reflects a highly priced IPO, higher number of shares offered and lingering concerns about the company's revenue growth.
The company's IPO came at a time when questions have been raised about its revenue growth model. Facebook's first quarter revenues dropped 7.5 percent from the previous quarter, which the company attributed to seasonal trends and lower ad rates. The company's profit for the quarter also dropped 12 percent to 205 million from a year ago.
Another setback for Facebook was GM plans to stop advertising on its site, after the automaker concluded that advertising on Facebook had little impact on its sales.
This is a worrisome issue because when a big brand like GM sees Facebook ads as not beneficial, chances are many more may follow suit. Facebook generates majority of its revenue from online advertising.
FB closed Monday's trading at $34.03, down $4.20 or 10.99 percent on a volume of 168.31 million shares. In after-hours, the stock further declined $0.25 or 0.73 percent to $33.78.
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by RTT Staff Writer
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