Facebook’s IPO was a spectacular flop. The shares struggled all day to stay above $38. The underwriters of the IPO, had to buy shares at $38 to support the stock and prevent it from going lower.
By the end of the day, many of the underwriters were eating into their IPO profit or were probably even losing money. It is simply a matter of time before they cut their losses, stop supporting the shares and hence Facebook’s share will sink. When that happens the big funds that bought at $38 for a quick profit flip will start dumping their shares. That will add to the selling pressure which will ultimately push the shares lower.
For months, anyone that asked for my opinion about Facebook IPO shares, I simply said, “I would stay away”. As I believed Facebook was overvalued and that was proved correct on Thursday. However, I did tell everyone, that I had placed an IPO allocation order at $30 or better and planned to sell it at the IPO. The shares were oversubscribed and I did not get any.
But, there were many that planned to buy no matter what the price was as they expected the shares to keep climbing. They are in for a rude awakening. The market now realizes Facebook is overvalued by any metric. The big money will not be buying Facebook shares for a long time. In fact, I believe it is going to be a short-sellers dream stock. I think the pressure will be so great Facebook shares could be $20 by September and with the lockup expiration it could easily be $10.
The slump in Facebook shares will have ramifications for the bay area economy as well. Many people that had hoped to become Facebook millionaires will suddenly realize that they are not. They will put off buying home and other big ticket items. This will be a positive for home buyers because less Facebook dollars will be chasing homes. Soon home prices will resume their slide down.
Facebook is a great company but not necessarily a great stock.