Markets defriend Facebook again
AT the depths of its slump, Facebook yesterday fell by as much as 20 per cent from the highest print since Friday’s IPO. And it was not just Facebook that took a hit. Having first set their sights on the social network, markets then turned their ire on the rest of the publicly-listed Internet 2.0 universe, with LinkedIn, Yelp and Zynga all taking a hit. Zynga, the makers of Farmville and other online games and one of Facebook’s major revenue streams, saw its price plummet on the disappointing first day’s trading, but managed to claw back losses yesterday. In what seemed to be an all round stigma trade, GSVC, the venture capital company that part owns Facebook, also saw drops approaching 10 per cent.
Facebook executed its long-anticipated IPO on Thursday last week, pricing the shares at $38 for a total of $16bn, valuing Facebook at $104bn. But despite the IPO fervour, the shares traded flat on their first day of trading, opening at $42 before falling below its opening print for the rest of the session.
There are plenty of commentators offering their explanations for the lacklustre opening day followed by yesterday’s rout. Fittingly, your Facebook news feed is probably full of them. They range from difficulties in valuing a free website with uncertain ad revenues to the effects of a now highly developed secondary market for shares in private companies – when Google floated in 2004, the likes of SecondMarket and SharesPost were non-existent.
It is easy to get caught up in the hype of the Facebook float – you’ve had an account for years, all your school friends are on it and you’ve been to see the movie. But you need to ask: why are you trading it? Is it because you think you can trade profitably or just because you feel a particular affinity with the FB:US ticker above all others? If you’re going in for the latter, you might as well save your money and spend it on Farmville credits. But if you’re going into it because you see the lows as a great buying opportunity, as you think you can ride the wave when the shares’ institutional holders come to the rescue to prop up its price, then you should take that position. Similarly, if you want to stand by the conviction that this is a bubble stock, then your spread betting provider will happily let you take a short position on that view. But whichever way you’re going to go, you should plan your trade – when are you going to buy, when are you going to sell and where are you going to set your stop losses. If you get caught up in the hype and get caught on the wrong side of a trade and lose the month’s rent, you will find that your spouse will defriend you pretty quickly.