NEW YORK — Facebook was supposed to soar. Instead, it plunged.
After the social network’s stock fizzled Friday in its long-awaited debut, its stock fell 11 percent Monday, even as the rest of the stock market rallied.
The downward spiral has left some people sitting on big losses, and others scratching their heads. After all, nothing fundamental has changed at Facebook in the last week since the much-hyped company came to the stock market — Facebook still has more than 900 million users, its 28-year-old founder Mark Zuckerberg controls the company, and it is still one of the few profitable Internet companies to go public.
Facebook’s IPO — like Netscape’s in 1995 and Google’s in 2004 — was billed as a milestone moment. Facebook was supposed to offer proof that social media is a viable business and more than a passing fad.
But investors don’t seem convinced. Facebook’s stock closed Monday at $34.03, down 11 percent from Friday’s closing price of $38.23. The investment banks that arranged Facebook’s offering set a price of $38 on Thursday. Although many investors had hoped for a big first-day pop, Facebook’s stock opened Friday at $42.05 and fluctuated between $45 and $38 throughout the day.
Some people may wonder why Facebook’s stock didn’t do worse. The answer is: Facebook had some help. On Friday, Facebook only got as low as mere pennies above the offering price of $38 per share but never fell below. The banks that underwrote the IPO, like Morgan Stanley and others, put in enough ‘‘buy’’ orders at $38 to keep the price from dropping below that level. It’s a customary gesture from underwriters to support the company they helped bring to market, explained Jay Ritter, a finance professor at the University of Florida. It’s a way to save face and show that the company and the bankers gauged an appropriate level of demand from investors and valued the company correctly.
Pulling off a successful IPO means properly gauging supply and demand. The investment banks arranging the transaction, the deal’s underwriters, work with the company to decide how much stock to sell and at what price. Facebook sold 421 million shares. That was a lot of stock to sell. It is one of the largest IPOs on record.