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In what was one of the most highly anticipated initial public offerings in history, Facebook (Nasdaq: FB) finally made its debut among much fanfare and frenzy Friday.
But the Facebook stock price failed to soar as high as the hype. While not exactly a dud, the intro was definitely subdued.
Shares opened around 11:30 a.m. in New York at $42.05, up about 11% from Facebook's IPO price. Momentum quickly ebbed, and shares dropped as low at the $38 IPO price in the first half hour of trading.
By 3 p.m. shares were hovering just above $38. But with an hour of trading still to go, investors shouldn't get complacent.
"The day isn't over," cautioned Money Morning Chief Investment Strategist Keith Fitz-Gerald. But regarding Facebook's debut, "initial trading has not been impressive."
Facebook Stock Demand
While the stock price gains were low key, trading was heavy, exceeding 100 million shares in the just the first three minutes of trading.
Ordinary market participants clamoring for Facebook stock eagerly raced in, while some of the chosen few who got shares on the IPO cashed out early, booking gains around $4 a share.
Facebook investors earlier this week raised the number of shares they would sell in the IPO from about 338 million to 421 million.
"If the demand wasn't there, they wouldn't have upsized the deal," Greenwood Capital's Walter Todd told Bloomberg News. "On the other hand, when you see insiders unloading their stakes, you start to wonder why. I could see it turning some institutional investors off."
But retail market participants welcomed the submissive first appearance of Facebook shares and pounced.
Stephen Kay, managing director at brokerage Knight Capital, who works with retail brokerages, told The Journal that Facebook's IPO was "unprecedented in terms of demand."
"I spoke to one of my big online brokers and at 6:05 this morning, when they allowed people to hit the button and make an order, there were hundreds of orders that were waiting," said Kay.
The Wall Street Journal reported that Knight Capital Group had one restless client willing to pay $4,000 for one single share of Facebook.
Steve Quirk, senior VP of trading for TD Ameritrade, told The Journal it had 54,000 orders for Facebook shares by 11 a.m., with half the clients who requested and qualified getting an allocation.
Facebook's Delayed Open
FB shares were expected to begin trading at 11:05 EDT to allow for orderly trading given the investor excitement surrounding the historic IPO.
But traders said they were experiencing difficulties in changing or cancelling orders that were submitted to Nasdaq's trading queue starting at 7:30 a.m.
Problems persisted after trading began. Execution reports were delayed, giving traders backup problems for some 20 minutes after the stock went live.
Nasdaq officials told exchange members in a midday notice that its staff "was investigating an issue in delivering trade execution messages" from trades made in Facebook's IPO, and was working on the problems.
The Facebook IPO Price
Priced Thursday night at $38 a share, the higher end of its amended price range, the social networking behemoth was valued at $104 billion.
The IPO raised some $16 billion, making it the third largest for a U.S. company, according to financial data provider Dealogic. Visa, which raised $17.86 billion in 2008, was the largest to date, and power company Enel was the second, Renaissance Capital noted.
Josh Constine and Kim-Mai Cutler wrote in a note for technology blog TechCrunch, "A $104 billion market capitalization put Facebook at more than 100 times its trailing earnings. That's a big multiple to live up to, and it will need to add bold new revenue streams to justify the mammoth valuation."
Founder and CEO Mark Zuckerberg rang the Nasdaq's opening bell from Menlo Park, CA, heralding the start of Wall Street trading Friday and his company's entrance.
At $38 a share, Facebook ranks as the 36th largest company in world and the 23rd largest U.S. company.
That makes Zuckerberg a billionaire 30 times over.
Facebook: The Good, Bad, and Ugly
Money Morning Capital Waves Strategist Shah Gilani weeded through all the good news, bad news and truly ugly news about Facebook on Thursday.
Gilani wrote that "the good news is overwhelming if you're Mark Zuckerberg, any of the company's founders, executive, or venture capital backers, many of whom own Facebook stock at a dollar a share."
"The bad news about FB's IPO," Gilani wrote, "is that it is all hype."
"As far as earnings, the first quarter of 2012 saw lower earnings than the first quarter of 2011. That is not a good start for the company's debut," Gilani continued.
"The ugly is worse," Gilani penned. "It's May. The markets are in a state of decline. Any macro implosion in Europe (it's already happening) or China (it's already happening) could take U.S. stocks lower and Facebook along with them."
Gilani added, "My money is patient. I'll be watching from the sidelines. Face it; Facebook is going to be a long story. I'm not in a rush to hit it at the top-especially when the top looks like where the stock is coming out."
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