Facebook (NASDAQ: FB), the largest social media company, is now two days into life as a public company and things aren't looking good. That's not to say most anticipated IPO in nearly a decade won't turn into a solid stock down the road, but for now, those investors that rushed into the Facebook on the first day of trading are paying a heavy price. After the stock gained 23 cents in its debut on Friday May 18, shares of Facebook plunged 11% on Monday.

What makes that decline all the more alarming is that it came on a day when the broader market was sharply higher and the Nasdaq jumped 2.5%. There are some valid, one-off reasons for the Monday tumble in Facebook shares. For example, Goldman Sachs (NYSE: GS), the prestigious Wall Street bank that along with rival Morgan Stanley (NYSE: MS) led the Facebook IPO, was selling huge amount of its Facebook shares. All told, Goldman has dumped half its Facebook stake, a slice of the pie worth $1.9 billion.



That's a lot of shares and it obviously created intense amounts of selling pressure. While the underwriters only have so much stock they can sell, many traders believe it was haphazard pricing of the Facebook IPO that led to Monday's sell-off. And who can be blamed for that? The underwriters.



The problem Facebook's stock faces in the near-term is that it will likely open for trading on Tuesday below its $38 offering price. On a historical basis, it's rarely a good sign when stocks swoon below their offering price. Along those lines, it's almost never a good thing when a stock does it on just its second day of trading.



Additionally, it could be a while before institutions even nibble at the stock and that's problematic because it was weak institutional interest that hampered the IPO in the first place. By now, any fund manager worth his salt knows that there's a Facebook lockup period expiring in 90 days, well 88 now. Then another in four months and another in six months. By the time all three lockup periods expire, the number of Facebook shares outstanding will double as employees and early investors dump their shares.



Perhaps the biggest problem Facebook faces is getting investors to "friend" the idea of this being a stock for the long-term, not a high-flying growth stock that can return 10% or more in a matter of just a few days. With revenue growth slowing and no dividend, swallowing the pill of Facebook for the long-term might leave investors with a bitter taste in their mouths.

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Tickers in this Article: FB, MS, GS

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