Facebook gets a reality check on IPO day

Once protected by the hype bubble, Facebook (s fb) is getting a hard lesson in the realities of the public markets. Despite the massive build-up to its IPO today, the market response has been more tepid than expected.
After a delayed start, Facebook started trading at $42, about 10.5 percent above its offer price of $38. But over the course of the day, it gradually traded down to close at $38.23, barely squeaking in above its starting price. In after hours trading, the price remained around $38.27. According to analysts and industry reports, whenever the stock threatened to fall below the opening price, Facebook’s underwriters stepped in to prop it up.
“We are seeing the stock hit reality like a brick wall,” said GreenCrest Capital senior managing analyst Anupam Palit.  Facebook’s scale and engagement might have pushed its valuation to $100 billion, but, like every other public company it’s not immune to the larger economic trends.
Palit said he expected Facebook’s first day to be less dramatic than that of its public tech peers (like LinkedIn, Pandora and Groupon, which all saw a first-day pop of at least 30 percent), but added that today was “definitely more muted” than anticipated.
Still, he said that Facebook’s performance was generally positive considering that “the guys who have flown really high on their IPO have tumbled in subsequent weeks.”
Also, while first-day retail interest in other tech stocks had been essentially nonexistent, Palit said, retail buyers were much more interested in Facebook.
“It is a much more ‘tangible’ company because the average person uses it and knows what it is,” he said. “There are retail investors who want to say they took part in this because it is a big moment in market history.”
That played out today, he said, as retail buyers were willing to push the stock above $40, while institutional investors, who are more sensitive to valuation, wanted to keep the price lower. In the following weeks, Palit expects the price to continue to fall, eventually settling around $32.
On Friday, more than 577 million shares in Facebook changed hands, setting a new record for IPO trading volume.