Facebook Stock On Sale? Shares Fall Back TO IPO Price After Opening Pop

By Steve Schaefer

The massive surge anticipated from Facebook did not materialize Friday and the stock was testing the initial public offering price of $38 less than half an hour after the first trade.

Shares opened at $42.05, a solid 10.7% gain but nothing outlandish. The first trade signaled a good job by the underwriters, led by Morgan Stanley, JPMorgan Chase and Goldman Sachs Group. But sellers outnumbered buyers early and the stock traded as low as the IPO price shortly after the initial trades, which likely brought in the underwriters to buy shares and stabilize the price. (See "Facebook Frenzy Begins: First Trade $42.05.")

The job of underwriters is to strike a balance between raising as much as possible for the company while giving clients like hedge funds and mutual funds a good deal, and the banks that run IPOs are roundly criticized when things go wrong. In May 2011, when LinkedIn more than doubled when its shares opened, the firms that led the transaction â¿¿ Morgan Stanley, Bank of America-Merrill Lynch and JPMorgan â¿¿ were maligned for mispricing its offering and allowing their clients to garner an outsized portion of the gains from the sale.

Friday's opening of Facebook shares was not without its intrigue, as trading did not begin until about 30 minutes after the expected 11 a.m. start, with the Wall Street Journal reporting traders were having difficulty changing or cancelling orders.

The delayed start had some echoes of the botched BATS IPO March 23, when the company tried to open its shares on its own exchange and had technical issues that forced it to cancel the entire offering. Fortunately the issues dealt with by Nasdaq OMX Group, which scored a coup by winning the Facebook IPO over rival NYSE Euronext, were not anywhere near the degree of the BATS debacle and the social network's shares were trading normally after the sluggish start.

Nasdaq was also warning of delayed trade execution notification messages, which contributed to the choppy start of trading. (In a likely-related development, shares of Zynga were halted several times by the Nasdaq Friday.)

About an hour after the delayed start, Facebook shares managed a rebound from their test of the IPO price, trading up 9.5% at $41.60, which puts the company's market cap at just over $114 billion.

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