Posted by: conservativecritic | July 17, 2012

FACEBOOK FOLLIES…

After the disappointing performance of Facebook’s stock following its May IPO, shares of the social networking company staged a pretty remarkable comeback, increasing by more than 20% in June from their lows. But the great Facebook stock comeback appears to be over for now.

Facebook’s stock fell again on Tuesday, dropping by more than 2% in morning trading after tumbling by 8% on Monday. The stock is now down by 17% from its June highs and has fallen by about 27% from its IPO price of $38.

The sudden July swoon will be disappointing to employees and ex-employees of Facebook who are sitting on a boat-load of shares and are waiting to be released from insider lock-ups starting next month so they can cash-in. Big time venture capital and hedge funds that invested early in Facebook are in a similar situation and are also probably checking Facebook’s stock price regularly. There is a lot riding on what happens to Facebook stock in the next few weeks.

There really is little news driving Facebook’s stock volatility. One Wall Street analyst speculated yesterday that investors are nervous that the company’s second-quarter earnings, which will be released on July 26, will disappoint the market.  With 15% to 20% stock swings in either direction in the space of a few weeks, Facebook’s stock looks like it has become a plaything of ultra short-term investors.

The valuation of Facebook has been controversial and tough to peg ever since Morgan Stanley, the lead underwriter of the Facebook IPO, expanded the offering and priced it aggressively. The stock has gone up and down like a yo-yo between a low of $25.52 and a high of $45.Today, at around $27.60, it’s getting closer to its all-time lows. If there was ever an example of a short-term speculative investment, this is it.

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