Why Facebook’s Share Price Is Going to Fall
The IPO did just great for the company and people selling the shares. That’s what an IPO is for after all, getting in money for those selling. However, one part of such a float is what’s known as “stabilisation”. For the first 30 days or so the underwriters of the issue try to keep the price stable.
Well, not so much stable: if the price soars then that’s just fine. But no one really likes it if the price starts to fall. So, the underwriters agree to buy enough of the shares to make sure that the price doesn’t swoon the moment the sellers have cashed their cheques. And that’s where the problem seems to be:
Company filings after the market closed on Friday night however revealed the extent to which the banks who led Facebook’s initial public offering – in which $16bn of shares were sold to new investors – were forced to move in to the market and buy shares in order to keep the price above the $38 level. Morgan Stanley, Facebook’s lead financial adviser, ended the day with 162m shares, worth $6.16bn. Other banks including JP Morgan and Goldman Sachs also bought shares, ending the day with $3.2bn and $2.4bn holdings respectively.
Those are the underwriters and they seem to be buying in substantial amounts to make sure the price doesn’t do that swoon. At some point they’ve got to stop doing so: which really doesn’t bode well for the share price.
My bet is that within a month we’ll see it heading towards $20: your view may vary of course.