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Ouch! Facebook shares plummet 20% and brokers look to sell fast

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Many brokers are expected to cut their losses on Facebook after shares in the social network plummeted below the $30 (£19.25) mark.

Facebook has now lost more than a fifth of its value since it was floated on Wall Street just under two weeks ago.

Analysts claim shares in the website are unlikely to recover in the short-term and it is being labelled as the most disastrous start of trading for any major flotation of the last 10 years.

Facebook shares were placed at $38 on 18 May and briefly hit a high of $45 before tumbling back to $38.25 at the end of the first day on Wall Street. But they have slipped a little further every day since then and have now dropped to a low of $28.84.

A number of brokers are now set to give up on Facebook shares improving after they recorded a 20 per cent drop in value, tumbling beyond the psychological threshold of $30 per share.

US research firm PrivCo’s managing director Sam Hamadeh said brokers tended to “sell and move on” when something is broken this fast.

“Historically, initial public offerings that trade down this quickly don’t ever recover,” he added. “Brokers have lost quite a bit of money and many will have their own rules about dropping out when it passes that ($30) barrier.”

Investors who lost out on the $16bn IPO claim they were misled about Facebook’s business prospects and are now suing the company and its Wall Street advisers.

Faith in other social networks and the wider technology group now appears to be waning.

Russian social network Vkontakte, which has 119 million users and is the country’s largest social media website, has put off its own IPO “indefinitely”.

Pavel Durov, the company’s founder and chief executive, said the problems besetting Facebook had “damaged many private investors’ trust in social networks”. Vkontakte had been looking at an IPO later this year or in 2013 and is valued at as much as $3bn.

US search company Kayak.com has also seen its float plans thrown into question, with analysts now believing its $150m IPO planned for June will not not go ahead.

Facebook has been busily hiring leading engineers and buying mobile companies to help it launch its own smartphone device. It is reportedly looking at purchasing Norwegian mobile company Opera Software, which could sell for up to $1bn.

 




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