Facebook investors check out

Facebook investors clamour to offload stock as 'lock up' ends and shares fall to new low.

by Elizabeth Anderson
Last Updated: 21 Aug 2012
Another day, another wave of concern for Facebook investors. Shares in the social networking site sank 6.3% as investors who had bought stock in the overpriced IPO clamoured to get rid of them.

The stock is now worth under $20 –almost half its $38 per share value when Facebook debuted on the stock market in May with a value of $100bn. The latest fall came as investors were allowed to offload ‘locked up’ stock for the first time since Facebook went public, releasing 271 million shares to lukewarm investors.

Facebook shares have come under relentless pressure since the company floated three months ago. In the first few hours of trading, all looked well: shares rose as high as $45 as investors rushed to stake a claim in one of the biggest tech IPOs in history. But by the third day its shares had settled at $31, down 18% on its $38 opening, and they have continued to fall ever since. If that continues it will be very bad news for those Facebook employees who have to wait until November to start selling their shares.

Critics were quick to question whether Facebook was really worth $100bn – close to 100 times last year’s profits. An update in late July also left investors spooked about Facebook’s business model. Despite the company’s first financial results revealing a 32% increase in revenues to $1.18bn, there was a surge in marketing and sales expenses which worried investors. And while Facebook users were close to hitting the billion-mark, the rise in user numbers was slowing – and that was before Facebook announced a fair proportion of accounts belonged to pets.   

Facebook isn’t the only company to suffer a disappointing debut on the public markets. Last Friday Manchester United listed in the US with an IPO price of $14 a share – rather lower than the $18-$20 hoped. After remaining broadly flat in the first half of this week, on Thursday shares fell to a low of $13.77 as doubts began to creep in that the heavily indebted football club would be able to turn a profit. Clearly tech isn’t the only sector responsible for overinflated initial public offerings.

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