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Facebook bubble begins to deflate?

Published time: May 21, 2012 15:06
Edited time: May 22, 2012 08:37
Facebook founder and CEO Mark Zuckerberg (Reuters/Brian Snyder)

Facebook founder and CEO Mark Zuckerberg (Reuters/Brian Snyder)

Facebook stock slumped as much as 13% at 9:50am EDT in a second day of public trading for the world's most popular social network, dispelling investors’ hopes for large initial increases and possible profits in the first days of Facebook trading.

Facebook floated its shares in a much-anticipated IPO Thursday evening, pricing shares at $38 for total proceeds of $16 billion at a record valuation of $104 billion.

Shares rose to a high of $42 and almost immediately sank back to the initial price investors paid for the IPO stock, totally destroying earlier predictions of speedy growth in value.

Following a volatile session that saw the shares skyrocket as much as 18% at one point, the record-breaking IPO ended with the shares closing the day edging up only 0.6% at $38.23.

“The fall wasn’t unexpected. The company’s stock was very much overvalued, with the media frenzy heating up interest for the IPO. What was a surprise is that the shares moved downwards so quickly. Last year hi-tech sector stocks saw their shares gradually drop from the IPO price over two to four months,” says analyst Ilya Rachenkov from Investcafe. 

“We believe the fair price of the Facebook stock is about $46 billion and this level may be attained very soon amid high volatility on the market, Facebook’s mobile monetization problem. The company’s shrinking 1Q 2012 profit could have also produced a negative effect.”