Why Facebook Got Crushed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of freshly public social network Facebook (Nasdaq: FB  ) have dropped by as much as 14% today, following its historic and potentially overhyped IPO on Friday.

So what: After the IPO priced at $38, shares had popped upward of 18% within the first minute of trading. Today, shares have touched as low as $33, or 13% below the offer price -- and on a broad-market rally day, no less. There's no shortage of well-deserved skepticism over Facebook's lofty valuation, and it seems the IPO glow is fading quickly.

Now what: Other social-media stocks are also falling in lockstep with Facebook's plunge, including social gamer Zynga (Nasdaq: ZNGA  ) , down 11% at the low, and Renren (NYSE: RENN  ) , down 15% at the low, among others. After seeing social media as one of the most sought-after sectors in tech for the past year, investors may be sobering up to the possibility that Facebook isn't all it's chalked up to be -- especially at these prices.

Interested in more info on Facebook? Add it to your watchlist by clicking here.

Fool contributor Evan Niu holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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Comments from our Foolish Readers

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  • Report this Comment On May 21, 2012, at 2:34 PM, suckerturd wrote:

    Lots of these shorts are positioned to make a killing in the markets I wonder how they have the ability to sell at 4x what they actually have yet the retail investor has to have the money to lose hmm weird how that works. I guess all the longs time will come eventually.

    Many people are throwing perfectly good stocks out the window just handing their money over to the fools selling with no capital.

    Strange how all these banks have so much money and stocks on paper yet none of them seem to be able to stimulate companies into hiring.

    How is it they all are so rich they have no money?

  • Report this Comment On May 21, 2012, at 2:36 PM, sbetzen wrote:

    This article needs to be retitled... Nowhere does it seem to even try to answer why. Short glittering generalities.... good for politics bad for stock analysis.

  • Report this Comment On May 21, 2012, at 2:38 PM, ckblackm wrote:

    How long after an IPO can you short a stock? Does it have to trade for a couple of days to get past the "settlement date" so that you can "borrow" the shares in order to short?

  • Report this Comment On May 21, 2012, at 2:56 PM, DMac1959 wrote:

    @ckblackm

    You can short a stock as soon as it begins trading as long as you can find someone who is willing to lend it to you. [Above comment assumes you're not a market maker and/or following the rules].

    A stock does not generally become margin elligible for 30 days after its IPO. This would have the effect of limiting the pool of stock available for loan to those owners willing to lend their fully paid for securities.

  • Report this Comment On May 21, 2012, at 5:35 PM, Philmoco wrote:

    The Sage of Omaha and his good colleague Charlie M have been known to say "I told you so"

  • Report this Comment On May 21, 2012, at 6:31 PM, xetn wrote:

    sbetzen:

    "...following its historic and potentially overhyped IPO on Friday" says it all.

  • Report this Comment On May 21, 2012, at 6:42 PM, mountain8 wrote:

    I agree with sbetzen. Don't you have an editor?" Or do you have an editor who cut most of your article? Or didn't you read what you wrote? Either way, you mislead by posting a question for a headline "why" and then don't answer the headline. What's happened to journalism? This would never gotten printed while I was writing. And I would have probably gotten fired. You, at least, are going to lose readers.

  • Report this Comment On May 21, 2012, at 6:45 PM, dyesin wrote:

    Please don't waste my time with articles like this. Just look at the title: "Why Facebook Got Crushed". Do you tell me why it got crushed? A few very generic lines and nothing more. Do you do this to get your SEO rank up? Or to move conversation into comments?

  • Report this Comment On May 21, 2012, at 9:38 PM, scoobster007 wrote:

    I clicked to see the answer to the question raised in my inbox, "Why Facebook Got Crushed?". I'm still looking. How about answering the question or at least begin a meaningful discussion. Thanks.

  • Report this Comment On May 21, 2012, at 11:49 PM, olindaboat wrote:

    Evan, you wasted my time.

    Please go DO something.

  • Report this Comment On May 22, 2012, at 1:08 PM, kcsag wrote:

    Totally agree with the aforementioned posters. Lousy writing, lousy journalism, rookie reporter at best. Where is the oversight, where is the editing, where is the investigative reporting? All missing. Misleading title that is purposefully crafted to get hits. Not much substance though.

    Some reporter at a prestigious news agency (NOT FOOL.COM) reported that analysts revised earnings estimates for FB days before the IPO, which was lower than the initial forecasts. Many underwriters are facing storm after this debacle. More importantly, inasmuch as the revised predictions were not made public but rather secretly offered to the coterie of these underwriters, there is bound to be negative publicity for some time.

    Analysts have already said that FB IPO might be the worst technology IPO in more than 20 years.

  • Report this Comment On May 28, 2012, at 3:12 AM, gene296 wrote:

    I had the opportunity to talk to some of the biggest players on facebook a while back. Alot of them were really upset that Facebook keeps changing the rules for not only the members but also the advertisers. This became really evident when they changed the IPO from $25 to $38 at the last minute. The Netflicks debacle comes to mind, when you raise your prices 60% in one shot, it makes people mad!

    Some of the bigger players pulled their accounts after the most recent changes caused them to lose money, and at the same time they had to work harder to maintain their accounts.

    In my opinion, you have to run a business your customers like, not the business you like! Many of the big players I talked to didn't think Facebook would even be around in 5 years!

    Sure, Wallstreet screwed up the IPO, but is that really the failure that caused the stock to drop? I would hope that common people realised that this was supposed to happen! When you put everything you have in front of the public, you can expect to be judged! In this instance, I think the general public got it right!

    Maybe, this is why Facebook got crushed!?

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