* Shares fall 10 percent, off lows of day
* Investors rotate into other tech stocks
* Nasdaq says it will change IPO procedure
* Advisers feel lucky to be left out
(Updates shares, adds market comment)
By Chuck Mikolajczak and John McCrank
May 21 (Reuters) – Facebook shares sank in the first
day of trading without the full support of the company’s
underwriters, leaving some investors down almost 25 percent from
where they were Friday and driving others to switch back to more
established stocks.
Facebook’s debut was beset by problems, so much so that
Nasdaq said on Monday it was changing its IPO procedures. That
may comfort companies considering a listing, but does it little
for Facebook, whose lead underwriter, Morgan Stanley, had
to step in and defend the $38 offering price on the open market.
Even so, one source said Morgan Stanley’s own brokers were
at one point “ranting and raving” about glitches that left
unclear what trades had actually been executed.
Without a fresh round of defense, Facebook shares fell $3.79
to $34.34 in afternoon trading. That represented a decline of 10
percent from Friday’s close and 24 percent from Friday’s
intra-day high of $45 a share.
“At the moment it’s not living up to the hype,” said Frank
Lesh, a futures analyst and broker at FuturePath Trading LLC in
Chicago, adding that some people may have decided to hang back
and buy the stock on the decline.
“Look at the valuation on it. It might have said ‘buy’ to a
few people, but boy it was awfully rich,” he said.
The drop in Facebook’s share price wiped some $10 billion
off of the company’s market capitalization — it became a
sufficiently interesting pop culture story that even gossip
website TMZ did a brief item Monday morning.
Volume was again massive on Monday, with more 141 million
shares trading hands by 3:15 p.m. EDT (1900 GMT), making it by
far the most active stock on the U.S. market. Nearly 581 million
shares were traded on Friday.
The drop was so steep that circuit breakers kicked in a few
minutes after the open to restrict short sales of the stock,
according to a notice from Nasdaq.
EMOTIONAL TRADING
“One of the things that we are seeing in Facebook is a lot
of emotional trading, in that over the weekend much of the media
coverage was negative, and that could be weighing on investors’
decisions to get out of the stock,” said JJ Kinahan, TD
Ameritrade’s chief derivatives strategist.
Shares of other one-time Internet darlings fell in lock step
with Facebook before rebounding on their own merits, with Yelp
, Groupon and LinkedIn all higher in
the early afternoon. Zynga remained lower, though.
The news was not all bad, though, as the Nasdaq rose
1.8 percent. High-profile tech stocks rose sharply, with Apple
up 4.3 percent and Amazon 2 percent higher.
FuturePath’s Lesh said some investors took money out of
Apple to buy Facebook, and now could be going right back in to
Apple given the lackluster performance of Facebook thus far.
By mid-afternoon on Monday, though, there were indications
that investors might be coming back in to Facebook. The stock
was well off the lows of the morning, and some market players
saw an entry point forming.
“We see 38 percent of the ideas on Facebook are short and 62
percent have a more long bias,” said Tim Murphy, general manager
for the Americas at TIM Group, which transmits and tracks equity
trade ideas from 750 brokerage firms for institutional investors
globally. “Brokers are saying to their clients there is a good
opportunity here.”
NASDAQ CHANGES
Still there was a long list of questions — ranging from
whether the underwriters priced the shares too high to how well
prepared the Nasdaq was to handle the biggest Internet IPO ever
— and few easy answers.
“It was just a poorly done deal and it just so happens to be
the biggest deal ever for Nasdaq and they pooched it; that’s the
bottom line here,” said Joe Saluzzi, co-manager of trading at
Themis Trading in Chatham, New Jersey.
Nasdaq said Monday morning the changes it was making would
prevent a repeat of what happened Friday, when glitches
prevented some traders from knowing for hours whether their
trades had been completed.
The exchange also said it would implement procedures to
accommodate orders that were not properly executed last week,
which could ultimately lead to compensation for some investors.
“It doesn’t instill confidence for clients. Talk about
trying to convince them it isn’t a casino,” one Midwestern
financial adviser told Reuters on Monday.
Separately, a source said Morgan Stanley’s brokerage arm
still had a “large number” of share orders from Friday that were
not confirmed, which it was working to resolve.
A Facebook spokeswoman declined to comment on the share
price issue.
Some financial advisers, who might have been furious last
week at getting left out, were counting themselves lucky by
Monday that they did not get their clients involved.
“By pure luck I failed to talk it up with a lot of clients
because I didn’t think I would be able to get much,” said one
Raymond James adviser, who sought, and received, only 500 shares
for one client.
“I basically told people they weren’t going to get any, and
luckily, it proved to be a bust,” the adviser said.
(Additional reporting by Jennifer Saba, David Gaffen, Edward
Krudy, Ashley Lau and Rodrigo Campos in New York, Doris Frankel
in Chicago and Jennifer Merritt in Orlando, Florida; Writing by
Ben Berkowitz in Boston; Editing by Edward Tobin, Maureen Bavdek
and Steve Orlofsky)
