Facebook stock takes another plunge amid regulator’s calls for review

Following an unimpressive opening last week, Facebook shares drops once again after investors question company’s future prospects and SEC latest call for review concerning problems that surrounded its IPO.

Facebook’s much anticipated IPO seems some what less overwhelming than expected. After Friday’s flat close and Monday’s 11 percent plunge, Facebook’s stock saw a decline of another 8 percent early Tuesday before a slight recovery. The calls by Securities and Exchange Commission Mary Schapiro for an urgent review of the IPO did nothing but worsen the situation. By Tuesday afternoon, the shares were down by 5.5 percent at $32.16 from $38 per share reducing the company’s market capitalization by $14 billion in just two days.

Schapiro said that while the rest of the market was doing well, investors are still concerned when it comes to Facebook. "I think there is a lot of reason to have confidence in our markets and in the integrity of how they operate, but there are issues that we need to look at specifically with respect to Facebook," she told reporters as she exited a Senate Banking Committee hearing.

While the market news is surely a setback for biggest social network, it could also slow down the prospects of other Web companies, such as Twitter, which is expected to be coming to the market in the next few months. Critics are blaming the plunge to the banks that advised Facebook on the IPO saying that it’s stock it overly priced. Facebook not just increased the number of shares but also the share price just ahead of the IPO.

"Adding 84 million shares to the offering suggested to all of us that demand was really high. That turned out not to be the case," Michael Pachter, a Webbush Securities analyst said. "This has zero to do with what the company is worth and everything to do with the supply of shares. You are asking every investor to take a leap of faith that they will make money at some point in the future”, Pachter argued. “There is not $18 billion worth of investors willing to take that leap. There may be $5 billion; there may be $10 billion, but not $18 billion."

Highly valuation might still not have been an issue, had Facebook outlined a clear plan to accelerate its advertising revenue. With little certainty about its prospects, the sky scrapping valuation was bound to tumble.