Facebook Falls in the Stock Market

5/18/2012, Facebook went public. Their controversial IPO was very highly anticipated by many with their price per share being valued somewhere around $40.00 a share. Since then, I’ve been watching Facebook’s stock each day since it went public and the price per share is continuing to decline. Since it’s IPO, their has been quite a bit of drama and talk surrounding the company.

One of the most publicized lawsuits Facebook, Goldman Sachs, and Morgan Stanley are currently involved in is in regards to some of Facebook’s investors. The class action lawsuit involves these companies sharing material information only with certain buyers of the company’s shares. While at this point in time that piece of information is under some brutal speculation, the entire dud of the Facebook IPO still doesn’t help the current market condition.

From Flickr.com by Sean MacEntee

From an economic standpoint, I view Facebook’s declining stock as a result of the buyers market. Facebook’s stock is completely in the hands of the buyer, not the seller. As a result of the buyer’s market, things aren’t looking too good for Facebook’s stock. The price of Facebook’s stock was valued at a fairly high price by the bankers, but nobody wants to buy it because the market has pretty much decided that the price they have to pay for the stock is no where worth it. Why isn’t the stock worth it? Simply because only about  40% of all Facebook visitors are buying the stock. That percentage is not too good, as the asking price is determined by the amount of visitors Facebook has, so the $40 asking price seemed right at the IPO since Facebook has 800 million visitors. But when the market price of the stock is determined by the amount of visitors actually purchasing the stock, the numbers don’t match up. As a result of this, Facebook’s stock is falling.

As for the stock market, the combination of the lawsuits and crash of the praised IPO are not helping matters. Steve Schaefer, a writer for Forbes, articulates this point very well in his article: “There is though, a lot to be said for confidence. And when the Facebook IPO [sapped] that confidence and [made] investors feel like they are not on a level playing field, it ultimately [was] not good for anyone. A $100 billion offering that was widely-expected to make a big splash landed with a thud instead, and even worse there are questions of how the deal and subsequent trading was conducted.”

Since Facebook is definitely not going away any time soon, I am interested to see what will happen with the lawsuits as well as Facebook’s stock in the coming months, because as of late, things are not off to a strong start and it’s only been a little over a week.