FaceBook is extending losses seen since its stock became public, making this one of the worst performances seen in a large scale IPO in the last 10 years. Since FaceBook made its shares public, the company has lost 23 percent of its original value, reaching new lows of $28.95. When FaceBook went public on May 18th, the stock was valued at $38, which made it the largest NASDAQ IPO in history.
The story continues today, as options trading in FaceBook starts today, with put options (which is a contract to sell the stock) outnumbering call options (which is a contract to buy the stock at a later date) by a ratio of 1.3 to 1. Market surveys are currently showing that nearly 180,000 put option contracts have already been processed as trader sentiment remains negative for the stock. Most of the investor activity centered on June put options valued at $30 (which is essentially a bet that FaceBook will be lower than $30 in June), with nearly 25,000 contracts recorded. The second and third most popular contracts were $32 and $34 June call options (which is a bet that recent losses will reverse back above these levels next month).
$25 billion in Market Losses
Since the social networking site launched its IPO on May 18th, the market value of FaceBook has dropped by $25 billion and this matched the broader market trends in equities as the major indices are en route to posting their largest declines since the end of the third quarter in 2011. Investor optimism that marked the session surrounding the IPO event but the bias has clearly shifted at this stage and stock prices breaking below key psychological areas. Prices were as high as $45 per share at one stage but the market volatility seen in recent weeks has led investors to avoid riskier stock prospects.
Some analysts have started to argue that these moves are not surprising at all, given that the $45 peak in FaceBook equated to a price to earnings ratio (the amount of corporate earnings for each share of available stock) of 83.1. To give some perspective of what this number actually means, a P/E ratio of above 83 would mean that FaceBook stock was more expensive than 99 percent of the companies that are currently listed in the NASDAQ (which is the index where FaceBook is listed). One key area to remember is that since FaceBook is remaining a big part of the financial news headlines, the negative sentiment is also seeing weighing on the other tech companies in the NASDAQ, so the impact is not limited to FaceBook alone.