Further slide forecast for shares in Facebook

Facebook shares would continue falling in price until investors believed they had found value in the company that could be sustained, Craigs Investment Partners broker Chris Timms said yesterday.

The bad news regarding Facebook tainted the sharemarket and might put investors off buying shares in strong companies which provided regular income, he said.

The much-awaited float of the social network appeared to have flopped as the shares slid below $US29 ($NZ38) yesterday and nervous investors fled.

Since its market debut on May 18, the eight-year-old company has shed about $US25 billion ($NZ33 billion) in value, about the equivalent to the market capitalisation of Morgan Stanley, the lead underwriter of Facebook's initial public offering (IPO).

Mr Timms said expectations had been high for Facebook but the promised riches had failed to materialise.

The share price was pitched at the upper end of the valuation and the listing price was lifted twice before being set.

The successful listing of Google had left a lot of people anticipating a similar success story for Facebook, he said.

"It hasn't performed. In fact, the shares have underperformed and the underwriters had to step in to keep it above water. All of the talk meant the share was pushed too hard and the pricing was too high."

The threat of lawsuits had also made investors nervous and the shares had gone from a "huge positive" to everyone looking sideways and wondering what they had invested in, Mr Timms said.

One 19-year-old was quoted online as saying he had sold because he was losing money.

"Well hello. It's a share. That's life. This is the danger of treating shares like a race meeting and expecting to make a quick buck overnight," Mr Timms said.

The technology industry traded on "impossible multiples" and Facebook's price/earnings ratio did not stack up to those of a "normal" company.

After the IPO, investors started asking what they had invested in and where their money had gone.

Others worried Facebook founder Mark Zuckerberg commanded more than half of the company's voting shares through agreements with other investors, granting him near-absolute control over Facebook.

The 28-year-old has so far refrained from commenting publicly about the controversy, and was reportedly not even in the US.

Eventually, the share price would find a floor where investors were satisfied they could find value and that their investment would add value to the company, Mr Timms said.

- dene.mackenzie@odt.co.nz

 

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