--Facebook shares fall below IPO price of $38
--Company's market cap falls below $100 billion
--Facebook's slide weighs on other Internet stocks
By Drew FitzGerald and Matt Jarzemsky
Facebook Inc. (FB) shares fell below its initial public offering price of $38 Monday, on just its second day of trading, a black eye for all those involved with the social networking company going public.
Facebook shares recently traded at $34.25, down 10.5%, in brisk trading. A move below $36.50 takes Facebook's overall valuation under $100 billion.
The premarket decline in Facebook shares sets the stage for the stock to close below the $38 level that shares were priced late Thursday. It is usually considered disappointing for a new stock to fall below its offer price so quickly, especially in the case of the most heavily traded IPO of all time.
"The underwriters completely screwed this up," said Michael Pachter, analyst at Wedbush Securities. "This thing should have been half as big as it was, and it would have closed at $45."
While investor enthusiasm was high for Facebook shares, leading bankers on the deal to increase the stock price and number of shares ahead of the offering, many observers questioned the more than $100 billion valuation being placed on the social network, where revenue and earnings growth were already beginning to slow.
"Facebook's IPO priced at a level well-above where we foresaw compelling 12-month returns," BTIG analyst Richard Greenfield said in a research note Monday. With revenue and earnings growth decelerating in 2012, "we find Facebook's current valuation unappealing."
On Friday, Facebook's shares repeatedly tested the $38 level, but lead underwriter Morgan Stanley (>> Morgan Stanley) reportedly moved to prop up Facebook's stock Friday. Dave Lutz, managing director at Stifel Nicolaus, said Facebook's underwriters might stop supporting the stock's price to thwart short-term traders counting on the underwriters buying at $38.
"We think this could just be a technique of Morgan Stanley trying to shake out some of the weaker hands," Lutz said. "What a lot of people will do [when the underwriters continue to step in] is say, 'If the underwriter's not going to let it break through, I'll just sit there and day trade right in front of it.'"
"In theory, [letting the price fall below $38] is a smart idea as long as there's not broader institutional selling," Lutz said. "Where Facebook closes today is going to be very important."
Technical glitches also marred Facebook's IPO on Nasdaq as the exchange struggled to deal with a flood of orders. Brokers and investors were unable to cancel or alter trades that had been placed early Friday morning, prompting Nasdaq to delay Facebook's open for 30 minutes.
Shares of Nasdaq OMX Group Inc. (>> NASDAQ OMX Group, Inc.) slid 0.6% Monday to $21.86.
Facebook's weak debut is setting the tone for the whole market.
"We're all watching Facebook," Lutz said. "That's going to take the wind out of the broader market, and you're going to have all the Internet stocks selling off."
Facebook's weak debut dragged down other newly issued online stocks on Friday, such as Zynga Inc. (ZNGA), LinkedIn Corp. (>> Linkedin Corporation), Groupon Inc. (>> Groupon Inc) and Pandora Media Inc. (>> Pandora Media Inc).
On Monday, Zynga fell 5.1% to $6.79, LinkedIn declined 4.7% to $94.33, Groupon slipped 1.5% to $11.41 and Pandora dropped 1.6% to $9.61.
Also, GSV Capital Corp. (>> GSV Capital Corp), a Woodside, Calif.-based fund that invests in venture-backed private companies, posted big declines. GSV has invested in Facebook, Groupon and Zynga, as well as the social-networking company Twitter Inc. GSV fell 8% to $12.10.
-By Drew FitzGerald and Matt Jarzemsky, Dow Jones Newswires; 212-416-2909; Andrew.FitzGerald@dowjones.com