Facebook's underwhelming IPO: Proof the stock was overhyped?

The company made a big splash in the stock market last week, raising a whopping $16 billion. This week, its share price is already plunging

Bad news for Facebook
(Image credit: AP Photo/Richard Drew)

To much fanfare, Facebook began selling shares on the Nasdaq stock exchange last week, capping an improbable journey from Mark Zuckerberg's Harvard dorm room to global tech supremacy. However, while the company sold an enormous $16 billion worth of shares, its stock price climbed a puny 23 cents over the course of the trading day, closing at $38.23 a share. And on Monday, the stock plunged by more than 10 percent, ending at $34.26. Is Facebook's troubled debut evidence that the company was overhyped?

Yes. Ordinary investors got suckered: Many people had expected Facebook's stock to pop on the first day, but its early struggles suggest that "professional money managers viewed all the hype as just that," says Gretchen Morgenson at The New York Times. "Indications are that Facebook was bought primarily by individual investors, not institutions," which means that small-time buyers with big-time dreams of getting rich fast were left holding a lot of Facebook stock that no one else wanted to buy. "It's an old line on Wall Street: If you can get your hands on a hot new stock, you probably don't want it."

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