Facebook shares drop to US$34.03 – price of hype or voice of reason?

22 May 2012

Facebook shares closed last night at US$34.03, more than 25pc from its high on Friday. With Morgan Stanley coming to the rescue with US$2.4bn worth of underwriting action, is it still too early to say if this IPO will fly?

Yesterday some US$10bn was wiped off the valuation and the tech press is full of sombre analyses of what may have gone wrong … or right!

I think Facebook may be a victim of too much expectation in the market. There was a lot of focus on this one, too much.

Reuters’ Felix Salmon points out Morgan Stanley had to exercise what’s known as a greenshoe option, but may still have made some money on it.

Facebook’s stock is still the most active on the US market at the moment.

As Business Insider’s Henry Blodget quite rationally points out, if the stock had actually popped to ridiculous levels on Friday millions of investors would have jumped in and then may have been burned. That didn’t turn out to be the case.

It’s perhaps a good thing – for Facebook and the tech industry as a whole – that realistic trading patterns are occurring, the shares are in the hands of institutions that may know what they are doing and that if Facebook’s business fundamentals hold true then the only way to go is to grow.

But one thing’s certain: as Silicon Valley’s most-watched IPO in almost a decade, expectations still haven’t been met.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years