Facebook shares plunge to new low of below US$20 as sell-off begins

17 Aug 2012

Facebook CEO Mark Zuckerberg will have to field awkward questions from investors in the months ahead

The expiry of a ban that prophets pre-IPO investors from trading yesterday saw investors sell off 156.7m out of 271m shares yesterday in social network Facebook, plunging the share price to a new low of less than US$20.

The share price plunged to US$19.69 before drifting back up to close at US$19.87 – a fall of 6pc.

It is expected that more than 2bn shares will become eligible for trading in the next 10 months.

However, analysts fear the worst in November, when the largest tranche of shares – those held by Facebook employees – will become eligible for trading.

Facebook went public on 18 May with a share price of US$38 and it peaked at US$45.

However, since then, the shares have been in freefall, not helped by its first public financial results, which showed the social networking giant founded by Mark Zuckerberg just eight years ago is making losses of US$743m from operations and a net loss overall of US$157m from revenues of US$1.1bn.

So what does this mean for Facebook investors? Well, those who got in early, as in pre-IPO, stand to still make a handsome return on their investments nothwithstanding today’s share price. However, it is those who invested in Facebook around the time of the IPO who are likely to be smarting about now.

But it is a long-term play and while Facebook may currently rank as one of the poorest-performing large tech IPOs so far, it has a user base approaching 1bn people – one in seven people on the planet – and should be capitalised sufficiently to allow itself to duck and weave and adjust its business model for long-term growth.

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