Facebook shares fall below $38 IPO price

Keith Bedford / Reuters

Facebook shares closed Friday just a few cents above its IPO price.

By msnbc.com news services

Stocks were sharply higher Monday, but shares of Facebook sank in their first day of trading without the full support of the company's underwriters, leaving some investors down 25 percent from where they were Friday afternoon.

Facebook's debut was beset by problems, so much so that Nasdaq said on Monday it was changing its IPO procedures. That may comfort companies considering a listing but does little for Facebook, whose lead underwriter Morgan Stanley had to step in and defend the $38 offering price on the open market.

Without that same level of defense, its shares fell $4.50 to $33.73 in the first few hours of trading. That represents a decline of 11.8 percent from Friday's close and 25 percent from the intra-day high of $45 a share. (You can check Facebook's stock price here.)

"At the moment it's not living up to the hype," Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago said, adding that some people may have decided to hang back and buy the stock on the declines.

"Look at the valuation on it. It might have said 'buy' to a few people, but boy it was awfully rich," he said.

The losses wiped some $19 billion off of the company's market capitalization -- not far from what Chief Executive Mark Zuckerberg was worth personally when the stock debuted.

The stock drop Monday means Zuckerberg has about $2 billion in losses on paper. However, his stake in the firm he founded was still worth around $17 billion early Monday.

When a stock falls below its offer price so soon after an IPO it is considered a disappointment for the company, particularly when the IPO is the most heavily traded ever and concerns such a high profile company. A number of reasons for the stock decline were offered by observers. Those reasons include offering too many shares, an overly strong IPO price and worries about slowing revenue growth at the social network.

Related: Nasdaq 'embarrassed' about Facebook delay

Volume was again massive, with more than 96 million Facebook shares trading hands by 11 a.m. ET, making it by far the most active stock on the U.S. market. Nearly 581 million shares were traded on Friday.

"One of the things that we are seeing in Facebook is a lot of emotional trading, in that over the weekend much of the media coverage was negative, and that could be weighing on investors' decisions to get out of the stock," said JJ Kinahan, TD Ameritrade's chief derivatives strategist.

The drop was so steep that circuit breakers kicked in a few minutes after the open to restrict short sales in the stock, according to a notice from Nasdaq.

Shares in other one-time Internet darlings fell in lockstep with Facebook on Monday, with Yelp, LinkedIn and Zynga all lower at mid-morning.

Related: Trading expert on Facebook IPO debacle

The broader market rally comes after Wall Street posted its worst weekly loss for the year and on assurances that world powers want debt-laden Greece to remain in the euro zone.

On Saturday, G8 leaders stressed that their "imperative is to promote growth and jobs" and gave verbal backing for Greece to stay in the euro, but despite calls from the United States for immediate moves to boost growth, no sign emerged that Germany would soften its stance on austerity as the cure for Europe's debt problems.

Stocks posted their worst weekly loss in a year on Friday, after a sloppy debut by Facebook disappointed investors.

After the steep decline last week, the market seems to be in for a technical relief rally, and hopes of less austerity in Europe is fueling the market, at least in the short term," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

"But I don't think we have seen the bottom here. I think we are in for a further decline."

Related: Facebook's IPO fails to live up to all the hype

Yahoo was in the spotlight after news that Chinese Internet entrepreneur Jack Ma is buying back up to half of a 40 percent stake in his Alibaba Group from Yahoo for $7.1 billion, in a deal that moves the Chinese e-commerce leader closer to a public listing.

Newly issued shares in Facebook Inc may have a hard time in the coming week if lead underwriter Morgan Stanley stops supporting the stock and managers lower down in the IPO book who were hoping for an early surge decide to get out before going underwater.

The Nasdaq is planning to revamp its systems for handling stock offerings after acknowledging that technology problems had affected trading in millions of newly issued Facebook shares on Friday, the Wall Street Journal reported.

Reuters contributed to this report.

CNBC's David Faber reports the latest detail on Facebook's sobering debut, and discussing where the stock heads from here, with Shayndi Raice, The Wall Street Journal, and Evelyn Rusli, The New York Times.

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