Articles/Columns
Facebook Tumbles: Market Forces Are Now at Play
Facebook (FB) shares tumbled down 9.6% by trade closing times on Tuesday (May 29th), according to reports by the Wall Street Journal (WSJ) and Reuters. Greater market forces were at play on Tuesday, since the day marked the debut of Facebook options on the options market. Not only are investors shifting their equity portfolios of FB shares, but some are now placing bets (i.e. put options) in anticipation of further decline of the value of FB shares. Actually, a majority of the options that were sold on Tuesday were bearish in nature, as mentioned by the WSJ. Therefore, most of the market players expect FB to continue to decline in value. Facebook opened on the Nasdaq, albeit with system hiccups, at 38 USD a share on May 18th. The FB shares closed on the first day just 23 cents above the IPO debut price. As of yesterday, 25 billion USD have been erased from Facebook, as reported by Reuters. The entire IPO process has been marred by allegations of misinformation by the underwriters and also losses originating from the failure of the Nasdaq trading system during the early hours of the IPO. In addition, Facebook increased the share price and the number of shares for the IPO by 25% just a few days prior to their big IPO debut. The massive hype that grew around the anticipated IPO of Facebook had small and large investors buying the stocks emotionally, rather than by their valuation principles. Other investors, especially hedge funds, were shorting the stock. With all of the uncertainty regarding the true value of FB, many market players are now taking advantage of the market mood and betting on further decline by selling options. With the shift in expectation from optimism (getting a piece of the Silicon Valley brand) to pessimism (selling broken dreams), market forces will foreseeably continue to drive the market price closer to earth (i.e. a value more comparable to other tech firms in the Valley). If Facebook were to somehow revolutionize its service and monetize this service and spread a "wow" factor across the markets, then the tides would turn and the price would effectively climb again. This change and realization can only come from actions by the company (i.e. not fabricated by financial analysts ? like during the dot-com mania). Whichever way the price goes, many investors, market players and Facebook employees already got rich from the newly created wealth; and some players will continue to get rich depending on how well they bet.
<Percentage of Shares Shorted During the First 4-days of FB Trading after the IPO debut>
Source:Wall Street Journal
<Bearish Versus Bullish Bets on FB Options on Tuesday, May 29th>
Source:Wall Street Journal
<Stock Chart for Facebook on Tuesday, May 29th>
Source:Bloomberg
（2012/5/30 掲載）