One of the most-awaited IPOs in the last few years has turned out to be a huge disappointment. Facebook Inc. (NASDAQ: FB), the social networking giant, began trading on Friday. However, the IPO has turned into a debacle.
Problems for Facebook began on the first trading day itself. IPOs listed on the Nasdaq normally commence trading at least an hour after the trading day begins at 9.30 AM EST. On Friday, the exchange informed traders that FB shares are expected to commence trading at 11 AM EST. However, trading did not commence at the time given by the exchange, creating confusion.
Facebook shares finally began trading at 11.30 AM, and as expected saw huge volume. Over 80 million shares changed hands in just the first 30 seconds of trading. A little while after trading commenced some traders complained that their orders were not being completed, while others complained that they were getting shares at higher-than-expected price. Nasdaq said on Monday that the trading delay was due to a technical error.
After the chaos on the first trading day, FB shares tumbled on Monday. The stock fell more than 10% on Monday, ending well below the IPO price of $38. The slide continued on Tuesday. Finally, in today’s trading, Facebook shares regained some lost ground. However, the stock is still trading well below the IPO price.
Meanwhile, a group of Facebook shareholders have filed a lawsuit alleging that crucial information about Facebook’s financial outlook was “selectively disclosed” to big banks ahead of the IPO.
According to a report published by Reuters on Tuesday, analysts at Morgan Stanley, the lead underwriter to the Facebook IPO, received privileged information about the social networking company’s financials. Reuters further said in a separate report that three other major underwriters, Goldman Sachs, JP Morgan and Bank of America, cut their earnings outlook for FB to the same level as Morgan Stanley ahead of the IPO.
Facebook today said that the lawsuit filed against it by a group of shareholders is without merit.
Trading glitches, a lawsuit, and sharp drop in share price. The first few trading days have been disappointment for Facebook. Some analysts had said Facebook is overvalued, and it seems for now that their call was correct.
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