SAN FRANCISCO - The spring is over. The dog days of August have taken hold.
In May, when investors tripped over themselves to buy a piece of Facebook, not even the skeptics predicted what has happened. Three months after the offering, shares have lost more than 40 percent of their value, closing at just under $21.81 on Friday, from $38 on May 18.
The stock began to dip immediately after its debut on the public markets, and at first technical errors with the offering were blamed. But these problems did not account for the stock's subsequent plunge, analysts and shareholders say. That decline, they say, can be traced to several factors, among them the sheer size and price of the initial offering, early exits by major investors and slowing growth.
Not least, the stock seems to have been jinxed by Facebook's own fairy tale.
“The underwriters (and the media) did a great job of hyping Facebook leading up to the I.P.O., and the sell-side (including me) did a great job of hyping it after,†Michael Pachter with Wedbush Securities, an equity research firm, wrote in an e-mail.
Still, some investors remain bullish. Facebook is profitable, it keeps its nearly one billion users glued to their screens longer than any other Internet site, and it is aggressively experimenting with new ways to drum up advertising - its main source of revenue. Just this month, for instance, it began offering application developers a way to focus ads, and sought to diversify revenue by opening its site in Britain to online gambling.
The next test for the stock could come soon. Over 1.6 billion shares will be eligible to come on the market in several waves, starting on Thursday, when a number of shareholders are allowed to sell. Investors may fear that an influx of shares could cause prices to fall even more.
“It becomes a company perceived as vulnerable rather than invincible,†said David B. Yoffie, a Harvard Business School professor who sits on several technology company boards, though none that relate to or compete with Facebook.
Facebook executives say they remain focused on expanding. They declined to comment on the stock price, but in late July, in a conference call with analysts to discuss the second-quarter earnings, David Ebersman, the company's chief financial officer, said he was “disappointed†in the stock dive. On Friday, Mr. Ebersman was in New York speaking to investors, current and potential.
One former Facebook employee, who did not want to be named because he did not want to damage his relationship with onetime co-workers, said he expected other employees to cash in their stock options as soon as they could, and predicted that the stock's woes could make it difficult to retain and hire talent. He no longer owns Facebook stock.
The former employee pointed out that many of the company's early big backers - including Peter Thiel, an original angel investor, and Accel Partners, one of its first venture capital investors - sold a hefty portion of their shares at the peak price.
Mark Zuckerberg, a co-founder and chief executive, sold a portion of his shares in the offering, to meet his tax bills, the company said. All told, the early backers sold over $9 billion in shares. They still own significant amounts.
Kevin Landis, chief investment officer of Firsthand Funds, an asset management firm, now has to weigh what to do with his piece of Facebook. Late last year, he bought what were then coveted Facebook shares on the private market. On average, his shares are now worth about two-thirds of what he paid. Under the purchase terms, he may not sell until late this year.
It's not “a good feeling,†he said, but he added that he remained confident that with so many users and so much data about them, Facebook was destined to be the most lucrative advertising platform in the world.
