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Stock seems to lack friends

Facebook's debut on Wall Street last week may have been so-so. But on Monday, it officially flopped.

Shares dropped 11 percent from the original starting price.

For the social-networking company, which declares that its mission is to "make the world more open and connected," the investors had a pointed response: Put up or shut up.

"We're very bullish on Facebook, but the share price just wasn't justified," said Rick Summer, an analyst at Morningstar. "It was overvalued."

Exactly what a share of a new company is worth is often a matter of much dispute, and Facebook's assessment of its own worth grew as the initial public offering approached.

The company initially said the appropriate range was $28 to $35. Then last week, as anticipation grew, it raised the range, $34 to $38.

On Friday, its first day of public trading, the company started selling stock at the high end of the second range, or $38.

Despite the hoopla that came with one of the largest offerings of U.S. stock, the reaction from investors was tepid. Share prices would have plunged immediately if not for the intervention of Morgan Stanley and other banks underwriting the company's public offering. They bought stock to prop up the price, and it closed Friday just above $38.

But at the opening bell Monday, the Facebook share price dropped and closed at $34. That one day of trading wiped out about $11 billion of the company's value, at least on paper. Chief executive Mark Zuckerberg personally lost about $2 billion Monday.

The drop doesn't damage Facebook, at least in immediate financial terms. It still raised $16 billion selling stock.

"The people who have to worry are the people who bought the stock on Friday," Summer said.

Indeed, the drop likely angered investors, leadingto a round of speculation about why Facebook isn't worth as much as some people thought.

"It was like trying to get a jumbo jet to take off in turbulent weather," said Kathleen Shelton Smith, principal of Renaissance Capital, an IPO research company. "It's going to be a bumpy ride."

Shares of some related social media companies also declined Monday. Zynga Inc., which makes FarmVille, CityVille and Mafia Wars and gets the bulk of its revenue from Facebook users, fell about 1 percent to $7.07. LinkedIn Corp., a network for professionals, dropped 1 percent to $97.99.

Stock seems to lack friends 05/21/12 [Last modified: Monday, May 21, 2012 8:54pm]
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