Facebook shares: A one-month autopsyBy John Shinal | MarketWatch – 6 hours ago
SAN FRANCISCO (MarketWatch) — I was hoping that retail investors would steer clear of Facebook Inc. shares on their opening day.
Knowing how much value had been taken out of the company in private markets, and how high the stock’s price-to-earnings ratio was at its public debut, it was clear that get-rich-quick thinking wouldn’t end well. But despite at least half a dozen warnings from this column and from many other quarters about the hazards of joining the first-day frenzy, some rushed in. Check out previous Tech Investor columns on Facebook.
Now, one month after the biggest tech IPO ever (FB), new data from an online portfolio-management company shows how much it cost investors to be left holding Mark Zuckerberg’s bag on opening day.
True to form, those investors are still holding on. Two-thirds of the 10,000 members of SigFig.com who either acquired IPO shares or bought them on the first day still own them, according to the latest data from the San Francisco-based firm.
“Facebook wanted more retail involvement, and they got it,” said Terry Banet, the chief investment officer of SigFig who compiled the figures. As of Tuesday’s close, such investors were sitting on an average loss of 16% one month into their Facebook adventure.
A broad swath of IPO investors took the Facebook plunge, as the number of SigFig members who bought the stock was more than 10 times the amount that had bought shares of either Zynga Inc. (ZNGA), Groupon Inc. (GRPN), LinkedIn Corp. (LNKD) or other Internet stocks that went public last year.
When you sell 421 million IPO shares, as Facebook did, there’s plenty of pain to go around. The SigFig users who bought on opening day paid an average price of $39.70, the data show.
Given the issue’s dismal performance in its first month of trading, those folks who sold suffered similar losses, of 17%.
Reuters Those who flipped the stock on opening day — about 7% of the total, or 700 traders — were lucky to get out when they did, as they averaged a loss of just 0.5%.
As is usually the case, retail investors bought their shares when company insiders were selling, then held them just long enough to lock in their losses. “As the price dropped, we saw selling outpacing buying,” added Banet.
Those who bought on opening day will at least be able to take some comfort in the fact that those who got in on the IPO fared little better. In other words, everyone got skinned to roughly the same degree.
Almost one in five SigFig users who bought Facebook got the stock at its IPO price of $38. That same lucky 18% sold for a median price of $33.20, giving them an average loss of just under 13%.
Now that the stock has bounced off its near-term low of just under $26, holding on to Facebook shares became a more rewarding strategy over the past two weeks, compared with the previous two. (The stock closed Wednesday at $31.60, down 1%.)
The irony, of course, is that the bounce occurred even though Facebook’s second-quarter earnings estimates have been coming down.
I wrote in an earlier column that Facebook would report seasonally strong sales in the second quarter, if its business trends of the last 18 months held. Read more about Facebook’s lumpy sales cycle.
Given that and the massive amount of Facebook selling that’s already taken place, momentum traders may start to get into the stock ahead of the mid-July earnings report.
That could be a viable short-term trading strategy, as long as you hedge your bets with bearish options and remember that it will be a bet, not an investment.
Even though the stock has an unusually large float for a social-media issue, the underwriting banks can still move it if they really want to, and will be able to until most insider lockups expire in about five months.
For those of you thinking about Facebook for the long term, the stock is still expensive, and its record of hitting financial forecasts remains unproven.
But as Facebook holders know too well, at least some of the pain of owning the stock already has been suffered.
John Shinal, a former technology editor of MarketWatch, is based in San Francisco.
Facebook shares: A one-month autopsy - Yahoo! Finance