You are guilty until you prove yourself innocent in cyberspace, right?

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Write or not, you can be wrong!

It is absolutely right that we be held responsible for what we post and say in cyberspace. But only if we indeed are the ones who wrote and posted it.

SOME years ago, a nephew – a freshie in college then – walked over to me with his phone and pointed out an app he had. It was all in Russian, so it was pretty much Greek to me.

“Watch this,” he said, and fiddled with the keys. Seconds later, my phone rang. It was my wife.

But the wife was sitting across the table, all innocent-like and with her handphone safely ensconced in one of those tie-string cloth bags – inside her handbag (why they do that with handphones, I will never understand).

So, I stared at the nephew. He grinned. It was an app, he said, that could tap into any phone nearby and make a call out, using that number. You got to chat and someone else got the bill.

 Cyber fun: This file picture shows a group of people patronising a cybercafe in Petaling Jaya. Someone could very easily walk into a place like this, hack into a person’s account and do something nasty.

“Do you want it? I can bluetooth it over to your phone,” he asked, oh so generously.

No thanks, I said, I can pay my bills without having to land someone else with the burden.

That was years ago and with a phone that’s nowhere as canggih as the ones to be found these days. These days, I am told, kids can do just about anything with their phones and computers or tablets.

Which is why the story of the new Evidence Act is quite scary for people like me. You see, anything posted on, say, your Facebook account is now your responsibility (as it should be, if you really did post it) and the real scary part is: you are guilty until you prove yourself innocent.

I’m no wonderkid and I am still trying to figure out what all this means but the doctrine of being guilty until proven innocent just doesn’t sit right.

Sure, some friends tell me that IP addresses are infallible and unique but these days, tech guys can do just about anything.

And what if some guy goes into a cybercafé, hacks into my computer and does some nasty stuff. Do I take the fall?

I mean, I’m the guy who grew up with stuff like The Net, where Sandra Bullock’s character has her identity stolen and loses just about everything. Of course, in the movie, she’s this IT-savvy girl-genius who manages to outdo the bad guys. But this is the real world. The bad guys often win!

And even Datin Paduka Marina Mahathir (she needs no introduction) had to make clear a few days ago that some imposter (im-poster, how apt) was posting stuff in her name.

Sure, there’s a need to regulate what’s being said in social media these days. I tell you, it’s a real rancorous country out there these days.

We’ve had a yellow rally, a red rally, big guys with beef burgers, bigger guys going bottoms up (with warm water please, no isotonic drinks. Someone should tell them that bottoms up is best done with the hard stuff), even punch-ups and egg-throwing fests.

And all that rancour is turning into a lot of venom and seditious, defamatory stuff that’s being spewed anonymously on the Net.

It doesn’t have to be all politics, either.

There was this model who was rubbed the wrong way, quite literally, by some guy in a cybercafe. And a few other guys had heckled her and made catcalls in Tamil.

If she is expecting catcalls in Hindi, Urdu, Telegu or Malayalam from Indian-looking guys in Malaysia, she has a long wait coming.

Most Indian-looking guys here speak Tamil and many do make cat-calls at pretty, young Indian-looking woman.

I don’t know where this woman’s ancestors came from in India but since the guys spoke in Tamil, she decided she hated the Tamils and went on a hate-spree on Facebook.

Of course, that angered other Tamils, whose only crime was trolling the Net. And they went after her with a real vengeance.

The poor woman had to apologise in a newspaper, saying she meant to scold only those guys who had hurt her.

That is the problem with the social media. It’s one thing to grumble to friends about others, but another altogether to go about hate-mongering on the Net.

This model is not alone. Some years ago, another woman – a snatch theft victim, I think – also went on a racist rant after her ordeal.

She, too, received several angry retorts before being forced to apologise.

So, it is important that we stop to think about what we want to write in cyberspace.

And I believe it is absolutely right that we be held responsible for what we post and say. But only if we indeed are the ones who wrote and posted it. But guilty until proven innocent? I’ll definitely take a rain check on that.

> The law comes into effect June 1, 2012 but the writer hopes that lawmakers will take another look at it, although he has no solutions to offer. It’s over to the techies, really.

Why Not? By D. RAJ

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Warning to Malaysian Internet Users: an Amendment to Evidence Act 2012

Facebook share price drops to $28, shaves $40bn off

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Facebook shares fall below $30 as US authorities begin investigation into IPO

Shares continue to slump on Wall Street as lawsuits against founder Mark Zuckerberg allege company misled investors

Electronic screens show the price of Facebook shares after they began trading in New York earlier this month. Photograph: Richard Drew/AP

Facebook’s shares dipped below $30 Tuesday as the company’s shares hit new lows and continued to struggle in the wake of its massive initial public offering (IPO).

Even as US stock markets bounced back from falls last week, Facebook’s shares slumped 9.62% to end the day at $28.84 – almost $10 below the $38 price set at their IPO earlier this month. Stock markets in the US, which had been closed on Monday for Memorial Day, ended up for the day.

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The share slide means Facebook is now valued at $61.98bn, a sharp fall from the $104bn it was valued at when the company went public on 18 May.

The IPO has proved a disaster for Facebook and its bankers. US authorities are investigating allegations that the company gave critical information to some investors and not others. Shareholders have launched class action lawsuits against founder Mark Zuckerberg, the company and its bankers, including lead bank Morgan Stanley.

Walter Zimmermann, senior technical analyst at United-ICAP, said there was plenty of evidence that the stock could fall further. He said the share sale had represented “a mania of historic proportions”.

“This was an IPO that was going to save California and uplift the western world. It was so overhyped and overvalued that it could only fall,” he said.

Some traders pointed to technical reasons for the stock’s continuing woes. Trading in Facebook options – contracts that allow investors to make bets on the direction of a company’s shares – started Tuesday. Traders can now also “short” Facebook shares, betting that the price will fall.

Sam Hamadeh, founder of analyst PrivCo, said most of the options were “bearish” meaning traders were betting on price falls and that popular contracts were putting Facebook’s share price in the mid $20s for June and July. PrivCo estimated Facebook’s shares were worth $25 ahead of the IPO.

“The shares would have probably fallen anyway but this probably sped the process up a little bit,” he said.

Zimmerman said discussions of technical issues missed a wider point. He said Facebook had sold so many shares – 96m – that there was little appetite from investors who had not bought shares. “Who is left to buy?” he said.

News that the company is considering building its own mobile device, an area where it has struggled to make money, seems to have been shrugged off by investors.

Last week law firm Robbins Geller launched a class action lawsuit on behalf of Facebook investors against the company and its bankers. Massachusetts’ secretary of commonwealth William Galvin has sent a subpoena to Morgan Stanley demanding more details of what the bank and Facebook executives told select investors ahead of the IPO.

By Dominic Rushe in New York  guardian.co.uk

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The Facebook Illusion

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THERE were two grand illusions about the American economy in the first decade of the 21st century. One was the idea that housing prices were no longer tethered to normal economic trends, and instead would just keep going up and up. The second was the idea that in the age of Web 2.0, we were well on our way to figuring out how to make lots and lots of money on the Internet.

Josh Haner/The New York Times Ross Doutha

The first idea collapsed along with housing prices and the stock market in 2007 and 2008. But the Web 2.0 illusion survived long enough to cost credulous investors a small fortune last week, in Facebook’s disaster of an initial public offering.

I will confess to taking a certain amount of dyspeptic pleasure from Facebook’s hard landing, which had Bloomberg Businessweek declaring the I.P.O. “the biggest flop of the decade” after five days of trading. Of all the major hubs of Internet-era excitement, Mark Zuckerberg’s social networking site has always struck me as one of the most noxious, dependent for its success on the darker aspects of online life: the zeal for constant self-fashioning and self-promotion, the pursuit of virtual forms of “community” and “friendship” that bear only a passing resemblance to the genuine article, and the relentless diminution of the private sphere in the quest for advertising dollars.

But even readers who love Facebook, or at least cannot imagine life without it, should see its stock market failure as a sign of the commercial limits of the Internet.

As The New Yorker’s John Cassidy pointed out in one of the more perceptive prelaunch pieces, the problem is not that Facebook doesn’t make money. It’s that it doesn’t make that much money, and doesn’t have an obvious way to make that much more of it, because (like so many online concerns) it hasn’t figured out how to effectively monetize its million upon millions of users. The result is a company that’s successful, certainly, but whose balance sheet is much less impressive than its ubiquitous online presence would suggest.

This “huge reach, limited profitability” problem is characteristic of the digital economy as a whole. As the George Mason University economist Tyler Cowen wrote in his 2011 e-book, “The Great Stagnation,” the Internet is a wonder when it comes to generating “cheap fun.” But because “so many of its products are free,” and because so much of a typical Web company’s work is “performed more or less automatically by the software and the servers,” the online world is rather less impressive when it comes to generating job growth.

It’s telling, in this regard, that the companies most often cited as digital-era successes, Apple and Amazon, both have business models that are firmly rooted in the production and delivery of nonvirtual goods. Apple’s core competency is building better and more beautiful appliances; Amazon’s is delivering everything from appliances to DVDs to diapers more swiftly and cheaply to your door.

By contrast, the more purely digital a company’s product, the fewer jobs it tends to create and the fewer dollars it can earn per user — a reality that journalists have become all too familiar with these last 10 years, and that Facebook’s investors collided with last week. There are exceptions to this rule, but not all that many: even pornography, long one of the Internet’s biggest moneymakers, has become steadily less profitable as amateur sites and videos have proliferated and the “professionals” have lost their monopoly on smut.

The German philosopher Josef Pieper wrote a book in 1952 entitled “Leisure: The Basis of Culture.” Pieper would no doubt be underwhelmed by the kind of culture that flourishes online, but leisure is clearly the basis of the Internet. From the lowbrow to the highbrow, LOLcats to Wikipedia, vast amounts of Internet content are created by people with no expectation of remuneration. The “new economy,” in this sense, isn’t always even a commercial economy at all. Instead, as Slate’s Matthew Yglesias has suggested, it’s a kind of hobbyist’s paradise, one that’s subsidized by surpluses from the old economy it was supposed to gradually replace.

A glance at the Bureau of Labor Statistics’ most recent unemployment numbers bears this reality out. Despite nearly two decades of dot-com enthusiasm, the information sector is still quite small relative to other sectors of the economy; it currently has one of the nation’s higher unemployment rates; and it’s one of the few sectors where unemployment has actually risen over the last year.

None of this makes the Internet any less revolutionary. But it’s created a cultural revolution more than an economic one. Twitter is not the Ford Motor Company; Google is not General Electric. And except when he sells our eyeballs to advertisers for a pittance, we won’t all be working for Mark Zuckerberg someday.- IHT

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Malaysians should take heed of the highly priced IPO!

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Malaysians should take heed that IPOs don’t always make money as the Facebook fiasco has amply demonstrated.

IF you think an initial public offering (IPO) is a sure way of making money, think again – things can go seriously wrong and companies can open a lot lower than their IPO price.

If anyone has delusions about an IPO automatically making money for those fortunate enough to have obtained the shares at that stage, the recent episode with Facebook should dispel any such notion.

Barely a week into trading, Facebook is trading at an 18% discount to its IPO price at the time of writing, hardly something that inspires confidence in IPOs in this current poor market.

 Like me not: A Facebook Like Button logo is displayed on a window of a store in Palo Alto, California. Facebook and its underwriters came under legal attack as investors filed lawsuits over Facebook’s flop controversy-marred IPO and have accused the company of hiding material information from investors. If anyone has delusions about an IPO automatically making money, the recent episode with Facebook should dispel any such notion. — AFP

Facebook was offered at US$38 per share to raise US$16bil for the vendors that included founder Mark Zuckerberg, who became a cash billionaire after the deal and whose company was valued at US$104bil based on the IPO price.

And this for a company that had earnings of less than US$1bil and revenue of US$3.7bil, giving a historical price earnings ratio (market value divided by earnings) of over 100.

But still investment bankers felt they had a deal, secured the IPO investors and then listed the stock on May 17, only to see a steep fall from the very first day of trading, which eventually saw a cut in value of almost a fifth.

That’s amazing for a stock pushed by some of the top investment firms in the US including Morgan Stanley and Goldman Sachs and a company with such a strong brand recognition too.

Now disgruntled investors are crying foul and amidst reports of selective information given to some banks by Facebook, shareholders have started suing Facebook and Zuckerberg in an embarrassing development that threatens to overturn yet again how Wall Street does business.

The entire Facebook fiasco underlines one key important lesson – ignore fundamental valuation at your own risk. True, markets have their own madness and sometimes stocks trade way above what can be considered their intrinsic value.

But they don’t stay there for long if they ever do especially if the earnings stream does not start kicking in soon. And if there are any indications of problem, one can expect no less than a collapse in share prices if valuations were excessively high in the first place.

As the Facebook saga unfolds in the US, the applications closed yesterday for Gas Malaysia’s IPO here. Those who follow the situation here closely may realise that disclosure in IPOs, while it may seem better than before, need not necessarily be so.

Try as I might I could not find a forecast for earnings for Gas Malaysia in its prospectus, a company with a blue chip reputation owned by amongst others, an MMC Holdings-Shahpadu joint venture, Petronas Gas and Tokyo Gas-Mitsui. The Petronas name attached to it gives it a certain mystic and pedigree, no doubt.

But still I could not find forecast earnings per share or dividends for this year in the thick prospectus of over 300 pages. If it was in there – and I doubt that – should it not have been highlighted? And how does one value the company without such figures?

There was a time when every IPO had forecast earnings and dividends, sometimes for more than a year. That gave retail investors a good feel for the company they were buying but apparently that’s no more the requirement. In the light of the Facebook fiasco, that’s a retrograde step.

Whether it’s in the US or here, there is a clear need to tighten up IPO procedures and disclosures so that all investors have equal access to information and are not discriminated against. That helps in the creation of a fair, orderly and clean capital market, which people can generally rely upon.

In Gas Malaysia’s case, some analysts put the forward price earnings ratio at the issue price of RM2.20 a share at 18 times and the dividend yield at 4.4%. It is academic now since applications have closed but those don’t look particularly attractive.

At 18 times, the price earnings ratio is above that of many Malaysian blue chips. The dividend yield at 4.4% look respectable but is based on 100% of earnings being paid out as dividends, which makes it equivalent to the earnings yield and also implies very little or no future growth because nothing is being retained in the business for expansion.

In that context it looks less than attractive. But the Malaysian public, perceiving IPOs as a means to make money and attracted by Gas Malaysia’s affiliations, including that with national oil corporation Petronas, might think otherwise.

One hopes not, but if the valuations turn out to be expensive, then there could be nasty surprises. To reduce the possibility of that, regulatory authorities should probably revert to older, more stringent standards for IPOs which require profit and dividend forecasts to be clearly stated and verified, subject to the usual conditions, by the merchant bankers and accountants.

That will go some way to reassure investors, and especially retail investors who are the last to know things, that there is substance in the company that supports the issue price.

We certainly don’t want a Facebook-style fiasco in Malaysia.

A Question of Business  By P. GUNASEGARAM starbiz@thestar.com.my

·Independent consultant and writer P Gunasegaram (t.p.guna@gmail.com) is not a fan of Facebook, the service or Facebook, the company.

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Facebook market makers’ losses total at least $100m; Share price should trade for $13.80!

Facebook market makers’ losses total at least $100m; Share price should trade for $13.80!

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NEW YORK (Reuters): Claims by four of Wall Street’s main market makers against Nasdaq over Facebook‘s botched IPO are likely to exceed $100 million, as they and other traders continue to deal with thousands of problems with customer orders.

A technical glitch delayed the social networking company’s market debut by 30 minutes on Friday and many client orders were delayed, giving some investors and traders significant losses as the stock price dropped. The exchange operator is facing lawsuits from investors and threats of legal action from brokers.

Four of the top market makers in the Facebook IPO — Knight Capital, Citadel Securities, UBS AG and Citi’s Automated Trading Desk — collectively have probably lost more than $100 million from problems arising from the deal, said a senior executive at one of the firms.

Knight and Citadel are each claiming losses of $30 million to $35 million, potentially overwhelming a $13 million fund the exchange set up to deal with potential claims.

Nasdaq also has to contend with the outside prospect that it could lose the Facebook listing entirely after having just obtained it.

Facebook shares ended regular trading on Thursday up 3.2 percent at $33.03, about $5 short of their offering price. Action on the stock, however, has essentially become secondary to the fallout from the IPO — its price, its size, its execution and questions about selective disclosure of its financial prospects.

Regulators including the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority and Massachusetts Secretary of the Commonwealth William Galvin are now looking into how the IPO was handled. The U.S. Senate Banking Committee is also reviewing the matter.

BROKERS UP IN ARMS

Advisers familiar with the situation said many investors are now finding out, nearly a week after the fact, that their orders were not executed at the prices they thought.

Fidelity, in a statement, said it was working with regulators and market makers on its clients’ issues “and we will continue to do so until we are confident that Nasdaq has done everything it can to mitigate the impact to our customers.”

Morgan Stanley is also still tending to trade orders placed by brokerage customers on Friday, two people familiar with the situation said. Nasdaq has said all orders were returned by 1:50 p.m. EDT last Friday, but a Morgan Stanley Smith Barney source said it did not get trade information in a “systemic, orderly way.

Late Thursday, the company held a call with its brokers and told them adjustments would be made to thousands of trades so that no limit orders would be filled at more than $43 a share for stock from the IPO day, a person familiar with the call said.

While brokerages may have received confirmation of trades made on Friday, many were still handling customer disputes over what price they received on the trades, officials said.

The question is “who is going to eat the cost” of compensating those investors, said Alan Haft, a financial adviser with California-based Kings Point Capital LLC, which has $200 million in assets.

One prominent plaintiffs lawyer said what happened with Facebook was reminiscent of the dot-com bubble.

“This is just another spin on the same game of unfair treatment of individual investors,” said Stanley Bernstein of Bernstein Liebhard. He chaired the plaintiffs’ committee in an IPO class-action suit challenging the role of investment banks in more than 300 IPOs between 1998 and 2000. The litigation ended in a $586 million settlement in favor of the plaintiffs.

MARKET MAKERS LOOM

The claims by market makers Knight and Citadel could end up dwarfing some of the brokerage issues, though.

“They are certainly facing the specter of some significant lawsuits if this pool is not enough,” a source familiar with Knight’s situation said of the Nasdaq claims pool.

Citadel has sent its losses to Nasdaq for potential compensation, a source familiar with the matter said. Citadel’s hedge fund was not affected.

The head of trading at Instinet said it still had no idea when Nasdaq would respond to requests for accommodation — essentially, compensation for the order problems — or if those requests would be honored.

“Were gonna be looking at a loss on our books” if Nasdaq does not honor the requests, Mark Turner said. “We basically made most of our clients whole because Nasdaq told us to go through the process and file for accommodation. If Nasdaq does not accommodate us we’re going to end up taking a loss.”

“I don’t know that I want to put a dollar amount on that but it’s not nearly as significant as Knight’s ($30-$35 million),” he said.

Citadel and Knight, as market makers to the Nasdaq, honor their clients’ buy, sell and cancellation orders. The orders are supposed to be processed by the exchange within milliseconds, but there was a nearly two-hour delay in processing Facebook orders at the Nasdaq.

During that time, market makers had no idea where their orders stood. And in reality, the price clients bought or sold at was sometimes different than the price they actually got.

For example, Facebook shares began trading with an opening cross price – the first price at which those not in on the IPO could buy or sell – of $42 per share. If an order to sell 10,000 shares at $42 went in at that time, but wasn’t filled until later in the day when shares were trading at around $39, a market maker like Citadel or Knight would make up the difference – in this case, at a cost of $30,000.

FEWER PROBLEMS ELSEWHERE

Several analysts who cover exchanges said Nasdaq’s legal liability should be limited, though. According to the analysts, securities rules give Nasdaq wide discretion in determining what, if any, compensation it should pay to customers who claim that they suffered losses due to trading execution.

Under exchange rules, Nasdaq’s liability regarding client losses from certain trading issues is limited to $3 million a month. Market makers will be arguing that Nasdaq was so grossly negligent that its actions during the IPO opening override the limits, said a source with knowledge of Knight’s situation.

Other firms said they did not have similar problems to those of Knight, raising questions about the scope of the losses.

“The problems were where people were trying to cancel orders; we didn’t have that,” said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. “Because we didn’t have a problem doesn’t mean there weren’t problems.”

E*Trade Financial Corp said its market making operations realized losses of “well under a million dollars.”

Charles Schwab Corp had a “small number” of the “tens of thousands of clients” who traded Facebook whose issues still have not been resolved, a spokesman said. “Each one requires some analysis to resolve, which can be time consuming.”

Shares of Nasdaq fell 1 cent to $21.80 on Thursday. As of Thursday’s close the stock was down 5.2 percent from its last close before the Facebook debacle. Over the same period NYSE Euronext is down just 0.1 percent.

The slide in the shares is adding to the pressure on Nasdaq Chief Executive Robert Greifeld, who defended the exchange’s performance at its annual meeting last Tuesday.

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By Mark Hulbert, MarketWatch

May 25, 2012, 12:02 a.m.

Facebook’s stock should trade for $13.80

Commentary: Here’s a fair-price calculation for Facebook

CHAPEL HILL, N.C. (MarketWatch) — Well, then, what should be the price of Facebook’s stock?

Rather than endlessly rehashing the events that have taken place over the last week, it is this question that investors should be asking. Surprisingly, however, few are doing so.

And yet, courtesy of a just-released study, calculating a fair price for Facebook’s stock isn’t as difficult as it might otherwise seem.

The study is entitled “Post-IPO Employment and Revenue Growth for U.S. IPOs, June 1996–2010.” Its authors are Jay Ritter, a finance professor at the University of Florida, and two researchers at the University of California, Davis: Martin Kenney, a professor in the Department of Human and Community Development, and Donald Patton, a research associate in that same department. ( Click here to read a copy of their study. )

The researchers found that the revenue of the average company going public between 1996 and 2010 grew by 212% over the five years after its IPO. Assuming Facebook’s revenue grows just as fast, and given that the company’s latest-year revenue was $3.71 billion, its annual revenue in five years’ time will be $11.58 billion.

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NYSE, Nasdaq face off for Facebook

After the fumbled IPO for Facebook, the NYSE is renewing efforts to lure more stock listings away from its rival, Nasdaq, Photo: AFP/Getty Images.

Since Facebook FB +3.22%   is most often compared to Google GOOG -0.95%  , let’s assume that its price-to-sales ratio in five years will be just as high as Google’s is currently: 5.51-to-1. You could argue that this is an overly generous assumption, of course. But it nevertheless means Facebook’s market cap in five years will be just $63.8 billion — 30% less than where it stands today.

Assuming that the total number of its shares stays constant, that works out to a price per share of just $23.26 — in contrast to its recent closing price of $33.03.

Ouch.

Actually, however, the news is even worse: No one is going to invest in Facebook shares today if its price will be 30% lower in five years. So, in order to entice someone to invest in it today, Facebook needs to offer a handsome return. Assuming that its five-year return is equal to the stock market’s long-term average return of 11% annualized, Facebook shares currently would need to be trading at just $13.80.

Double ouch.

Don’t like that answer? Try focusing on earnings rather than sales, and you get only a marginally different result. Assuming its profit margin stays constant (instead of falling as it could very well do as it grows), assuming its P/E ratio in five years will be just as high as Google’s is today, and assuming that its stock will produce a five-year return of 11% annualized, Facebook’s stock today should be just $16.66.

How can Facebook investors wriggle out from underneath the awful picture these calculations paint? By assuming that its revenue and profitability will grow faster than the average IPO between 1996 and 2010 — and not just by a little bit, either, but a whole lot faster.

Of course, it’s always possible that Facebook will be able to pull that off.

But, as Professor Ritter pointed out to me earlier this week, “the bigger a company gets, the harder it is to maintain percentage growth.” And Facebook is already huge — larger, in fact, than all but 47 other publicly traded companies in the U.S.

So my back-of-the-envelope calculations for this column could very well be too optimistic rather than too pessimistic.

Given all this, Ritter said that a market cap “of $63 billion … five years from now seems like a very reasonable scenario.”

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

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The lawsuit charges the defendants with failing to disclose “a severe and pronounced reduction” in forecasts for Facebook‘s revenue growth in the run-up to Friday’s IPO.

The lawsuit names Mark Zuckerberg, Facebook’s founder, as a defendant, as well as top Silicon Valley investors Peter Thiel and Marc Andreessen. Photograph: AFP/Getty Images

Facebook, Morgan Stanley and some of the biggest names in Silicon Valley are being pursued over the social network’s disastrous share sale by the law firm that won a $7bn settlement for Enron’s shareholders.

Robbins Geller is co-ordinating a class action lawsuit alleging that Facebook and its bankers misled investors about the true state of their business while informing a handful of privileged clients about the company’s true prospects.

The lawsuit, filed in New York, names Mark Zuckerberg, Facebook’s founder, as a defendant, as well as top Silicon Valley investors Peter Thiel and Marc Andreessen, and Goldman Sachs, JP Morgan and Barclays Capital.

Facebook shareholders have sued the social network, CEO Mark Zuckerberg, and a number of banks, alleging that crucial information was concealed ahead of Facebook’s IPO.

The lawsuit, filed in the U.S. District Court in Manhattan this morning, charges the defendants with failing to disclose in the critical days leading up to Friday’s initial public offering “a severe and pronounced reduction” in forecasts for Facebook’s revenue growth, as users more and more access Facebook through mobile devices, according to Reuters, which cited a law firm for the plaintiffs. (The case is Brian Roffe Profit Sharing Plan v. Facebook, 12-04081.)

Earlier this month, Facebook updated its filings with the Securities and Exchange Commission to say that the shift to smartphones and other mobile gadgets is cutting into the prices it can set for advertisers, which would in turn hurt the company’s revenue. In March, the social network had 488 million monthly average unique users of its mobile products, out of a total of just over 900 million registered users.

The plaintiffs charge that the changes to the forecast by several underwriters of the IPO were only “selectively disclosed” to a small group of preferred investors and not to the investment community at large. “The value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result,” the complaint says, per the Reuters report.

Facebook’s stock opened Friday priced at $38 and, aside from a slight uptick right at the start, has been trading lower since then. It closed at $31 last night. In early trading today, shares are up better than three percent to around $32.

More Facebook news

• Nasdaq expresses regret over Facebook IPO
• Who downgraded Facebook’s prospects? Maybe Facebook did
• Facebook’s swooning stock: Pity Sean Parker, other gajillionaires

A report from well-known Wall Street watcher Henry Blodget, citing an unnamed source, posits that a Facebook executive was responsible for telling institutional investors, but not smaller investors, about the reduction in revenue estimates.

Speaking on CBS This Morning today, Blodget described the sequence of events regarding the estimates and the failure to fully share material information. “The fact that it was only distributed verbally to a handful of institutions as opposed to all investors is a problem,” he said.

This isn’t the only lawsuit related to Facebook’s IPO. A Maryland investor, for instance, is suing the Nasdaq stock exchange over glitches in how it handled the offering.

We’re reaching out to Facebook for comment and will update this story when we hear back.

by Jonathan E. Skillings

Facebook, banks sued over pre-IPO analyst calls

 

Wed May 23, 2012 11:02am EDT

(Reuters) – Facebook Inc and banks including Morgan Stanley were sued by the social networking leader’s shareholders, who claimed the defendants hid Facebook’s weakened growth forecasts ahead of its $16 billion initial public offering.

The defendants, who also include Facebook Chief Executive Officer Mark Zuckerberg, were accused of concealing from investors during the IPO marketing process “a severe and pronounced reduction” in revenue growth forecasts, resulting from increased use of its app or website through mobile devices. Facebook went public last week.

The lawsuit was filed in U.S. District Court in Manhattan on Wednesday, according to a law firm for the plaintiffs. A day earlier, a similar lawsuit by a different investor was filed in a California state court, according to a law firm involved in that case.

In the New York case, shareholders said research analysts at several underwriters had lowered their business forecasts for Facebook during the IPO process, but that these changes were “selectively disclosed by defendants to certain preferred investors” rather than to the public generally.

“The value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result,” the complaint said.

Representatives of Facebook and Morgan Stanley did not immediately respond to requests for comment.

Facebook shares fell 18.4 percent from their $38 IPO price in the first three days of trading, reducing the value of stock sold in the IPO by more than $2.9 billion.

(Reporting by Dan Levine in San Francisco and Jonathan Stempel in New York; Editing by Gerald E. McCormick and Lisa Von Ahn)

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Investors fault everything

Let the Facebook Inc. (FB) finger-pointing begin.

After one of the most anticipated initial public offerings in history, Facebook’s 19 percent drop this week prompted investors to fault everything from Morgan Stanley’s role as lead underwriter, to the company’s greed and the Nasdaq Stock Market.

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People walk by the Nasdaq stock market in New York, on May 18, 2012. Photographer: Spencer Platt/Getty Images

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May 22 (Bloomberg) — Jeff Corbin, chief executive officer of KCSA Strategic Communications, talks about the 19 percent decline in Facebook Inc.’s shares following the company’s initial public offering. Corbin speaks with Mark Crumpton on Bloomberg Television‘s “Bottom Line.” (Source: Bloomberg)

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May 21 (Bloomberg) — Paul Kedrosky, author of the Infectious Greed blog and a Bloomberg contributing editor, and Max Wolff, an analyst at Greencrest Capital Management, talk about trading in shares of Facebook Inc. Facebook fell below its $38 offer price in the second day of trading. Kedrosky and Wolff speak with Emily Chang on Bloomberg Television’s “Bloomberg West.” (Source: Bloomberg)

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May 21 (Bloomberg) — Darren Chervitz, research director for Jacob Funds, talks about Facebook Inc.’s stock price performance and the outlook for the social network firm. Facebook, the social networking site that raised $16 billion in an initial public offering, fell below its $38 offer price in its second trading day. Chervitz speaks with Trish Regan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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May 22 (Bloomberg) — Bloomberg’s Dominic Chu reports that after one of the most anticipated initial public offerings in history, Facebook’s 11 percent drop on Monday prompted investors to fault everything from Morgan Stanley’s role as lead underwriter, to the company’s greed and the Nasdaq Stock Market. He speaks on Bloomberg Television’s “Inisde Track.” (Source: Bloomberg)

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May 22 (Bloomberg) — Cliff Lerner, chief executive officer of Snap Interactive Inc., talks about the impact of the drop in Facebook Inc.’s shares on Snap’s stock. Lerner talks with Trish Regan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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The Facebook Inc. logo is displayed at the Nasdaq MarketSite in New York, on May 18, 2012. Photographer: Scott Eells/Bloomberg

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A pedestrian walks past the share price for Facebook Inc. displayed at the Nasdaq MarketSite in New York, U.S., on Monday, May 21, 2012. Photographer: Scott Eells/Bloomberg

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Facebook Inc. Chief Financial Officer David Ebersman, seen here, was the point person on the deal, while Mark Zuckerberg and Chief Operating Officer Sheryl Sandberg weighed in on major decisions throughout the process, people said. Photographer: Tony Avelar/Bloomberg

“It was like the gang that couldn’t shoot straight,” said Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston. He said he placed Facebook orders for clients. “The underwriters mis- estimated what actual demand was, and there was pure execution failure coming out of the Nasdaq.”

Taking the most heat is Morgan Stanley, said Mullaney. The bank was lead underwriter among the 33 firms Facebook hired to manage the $16 billion sale of stock. The bank decided with Facebook executives to boost the size and price days before the May 17 IPO, ignoring advice from some co-managers, said people with knowledge of the matter, who declined to be identified because the process was private. Morgan Stanley (MS) talked with few of its fellow underwriters aside from JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS) throughout the IPO, one person said.

“They overplayed the enthusiasm and probably just misread the atmosphere of the marketplace,” said Keith Wirtz, who oversees $15 billion as chief investment officer at Fifth Third Asset Management in Cincinnati and bought some stock in the IPO.

Blame Game

Facebook increased the number of shares being sold in the IPO by 25 percent last week to 421.2 million and raised its asking price to a range of $34 to $38 from $28 to $35. Had Facebook kept the original terms, investors may have had a better shot at a first-day pop. Instead, the stock was little changed in its debut because Morgan Stanley intervened to prevent it from falling below the IPO price.

The shares fell 8.9 percent to $31 at the close today, after an 11 percent drop yesterday.

Just days before Facebook raised the size and price of its IPO, the company began telling analysts to lower their sales forecasts, people familiar with the matter said. Morgan Stanley analysts were among those who cut their projections during the roadshow, said one person. The move also followed a May 9 filing in which Facebook said advertising growth hasn’t kept pace with the increase in users.

Investors Misled?

Some investors say they felt misled by the underwriters. According to one London-based fund manager who asked not to be named, bankers indicated demand was so strong that he placed a bigger order than he thought he would get, leaving him with 40 percent more Facebook shares than anticipated. He sold most of that stock on the first day of trading.

The decision to boost the price range reflected the demand in the market, said a person involved in the process. Michael DuVally, a spokesman for Goldman Sachs, and Pen Pendleton, a spokesman for Morgan Stanley, declined to comment. Jennifer Zuccarelli, a spokeswoman for JPMorgan, declined to comment. Underwriters didn’t say how great demand was.

Morgan Stanley and Facebook consider problems with Nasdaq OMX Group Inc.’s computer systems among the reasons for the IPO’s performance so far, according to people familiar with the matter. Nasdaq’s trading platform was overwhelmed by order cancellations and updates that made the stock-market operator unable to finish the auction required to open trading. The U.S. Securities and Exchange Commission said it will review the trading.

Nasdaq Software

Nasdaq Chief Executive Officer Robert Greifeld said on a call with reporters on May 20 about the glitch that the opening delay “had no apparent impact on the stock price,” noting the share decline began after all brokers had received confirmation about their trades in the opening auction. Robert Madden, a spokesman for Nasdaq OMX, declined to comment beyond Greifeld’s statement.

Nasdaq said in a notice yesterday it delivered all outstanding execution and cancellation messages to brokers for their IPO cross orders at 1:50 p.m. Facebook declined 5.9 percent after 1:50 p.m.

Facebook CEO Mark Zuckerberg and the early backers should be held accountable for the stock drop, said Francis Gaskins, president of researcher IPOdesktop.com in Marina Del Rey, California. Goldman Sachs, Accel Partners, Digital Sky Technologies and other existing holders boosted the number of IPO shares they offered in Facebook on May 16, a day after the company increased its price range.

‘Mispriced’ Market Value

“It’s a combination of Zuckerberg’s ego for that $100 billion market cap, and the shareholders selling who wanted an exit,” said Gaskins. “Somehow it just missed them that this was mispriced.”

Larry Yu, a spokesman for Menlo Park, California-based Facebook, declined to comment. Rich Wong, a partner at Palo Alto-based Accel Partners, and Yuri Milner, founder of Digital Sky Technologies in Moscow, didn’t respond to requests for comment.

Facebook Chief Financial Officer David Ebersman was the point person on the deal, while Zuckerberg and Chief Operating Officer Sheryl Sandberg weighed in on major decisions throughout the process, people said. At Morgan Stanley, Dan Simkowitz, chairman of global capital markets, was one of the main bankers on the offering. Michael Grimes, global co-head of technology investment banking at Morgan Stanley, also played a key role.

Underwriters did accomplish part of what they set out to do: turn paper into cash for pre-IPO holders.

“It was successful for the liquidating owners, absolutely, because they got all that and then some,” said Peter Sorrentino, a fund manager who helps oversee $14.7 billion at Huntington Asset Advisors in Cincinnati.

For the investors it was a different story.

“I shame the people who were lining up to buy the thing,” said Sorrentino, whose firm didn’t buy stock in the IPO and tried to talk clients out of purchases. “The financials were there, do the math. Everyone wanted to be caught up in the glamour offering of the year. People just had stars in their eyes.” – Bloomberg

By Serena Saitto, Lee Spears and Joseph Ciolli – May 23, 2012 4:17 AM GMT+0800

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(Reuters) – Facebook‘s shares fell again on Tuesday, leaving them down more than a quarter from Friday’s highs as questions mounted over the company’s financial prospects and its ability to grow fast enough to live up to the hype surrounding its stock.

After Friday’s nearly flat close and Monday’s 11 percent plunge, the stock dropped as much as 9 percent in early trading on Tuesday before reversing some of the decline.

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Facebook shares were down 4 percent at $32.70 just after midday. Volume was again heavy, with more than 66 million shares traded. That followed turnover of 168 million shares Monday and 581 million on IPO day.

“There was a quick rush to exit yesterday, and when it broke the deal price it became self-fulfilling that there was going to (be) additional pressure. That’s continuing today even though there’s no real news on it,” said Michael James, a senior trader at regional investment bank Wedbush Morgan in Los Angeles.

Investors were still shaking their heads over the botched opening trading of Facebook when Reuters reported late Monday that the consumer Internet analyst at lead underwriter Morgan Stanley cut his revenue forecasts for Facebook in the days before the offering.

JPMorgan Chase and Goldman Sachs, which were also underwriters on the deal, each revised its estimates during the road show as well, according to sources familiar with the situation.

One mutual fund source said they had never, in a decade of experience, seen an underwriter cut a company’s outlook during the road show prior to an offering.

Brokers, who over-ordered shares expecting supply would be limited, continued to complain they received too much stock to handle. Meanwhile some retail investors were already consulting lawyers.

STILL OVERVALUED?

As bad as the declines have been, a view persists that the stock remains overvalued.

With Monday’s closing price of $34.03, the market implied a 24 percent annual growth rate for earnings over the next 10 years — a rate that would rank above 90 percent of the companies in that industry.

Thomson Reuters Starmine, meanwhile, more conservatively estimates a 10.8 percent annual growth rate, which would value the stock at $9.59 a share, a 72 percent discount to its IPO price of $38.

Similarly, the company’s price-to-earnings ratio remains lofty, even after the selloff. The $34.03 price implies a forward P/E of 59, compared with Google’s 13.3 forward price-to-earnings ratio (for a similar rate of growth).

TASKMASTER

Investors said the challenge for the young company is to prove it can grow aggressively, to justify its lofty valuation and demonstrate its maturity.

“Wall Street is a severe taskmaster and they’re going to want to see quarterly results, then guidance, then subsequently they’re going to want to see that guidance beaten, and then the guidance raised,” David Rolfe, chief investment officer of Wedgewood Partners, said on Monday evening.

Besides the pressure on Facebook, there is also an intense focus on Nasdaq, which has shouldered much of the blame for trading failures last Friday. The exchange has already set aside money to compensate customers, but some on Wall Street are warning its ability to snag future big IPOs is at risk.

Barry Ritholtz, a widely followed financial blogger and the chief market strategist at Fusion IQ in New York, took all sides — Facebook, Morgan Stanley and Nasdaq — to task in the sharpest terms on his blog Tuesday.

“Thus, what we see are a series of bad decisions made by Facebook’s executives going back many years. The insiders got greedy, too clever by half, in how they used secondary markets. They picked a bad banker and an awful exchange,” Ritholtz said.

By Edward Krudy and Ryan Vlastelica

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For all its valuation, the social network is just another ad-supported site. Without an earth-changing idea, it will collapse and take down the Web.

Flickr Creative Commons Tanaka Juuyoh and Cambodia4kids.org Beth Kanter

Facebook is not only on course to go bust, but will take the rest of the ad-supported Web with it.

Given its vast cash reserves and the glacial pace of business reckonings, that will sound hyperbolic. But that doesn’t mean it isn’t true.

At the heart of the Internet business is one of the great business fallacies of our time: that the Web, with all its targeting abilities, can be a more efficient, and hence more profitable, advertising medium than traditional media. Facebook, with its 900 million users, valuation of around $100 billion, and the bulk of its business in traditional display advertising, is now at the heart of the heart of the fallacy.

The daily and stubborn reality for everybody building businesses on the strength of Web advertising is that the value of digital ads decreases every quarter, a consequence of their simultaneous ineffectiveness and efficiency. The nature of people’s behavior on the Web and of how they interact with advertising, as well as the character of those ads themselves and their inability to command real attention, has meant a marked decline in advertising’s impact.

At the same time, network technology allows advertisers to more precisely locate and assemble audiences outside of branded channels. Instead of having to go to CNN for your audience, a generic CNN-like audience can be assembled outside CNN’s walls and without the CNN-brand markup. This has resulted in the now famous and cruelly accurate formulation that $10 of offline advertising becomes $1 online.

I don’t know anyone in the ad-Web business who isn’t engaged in a relentless, demoralizing, no-exit operation to realign costs with falling per-user revenues, or who isn’t manically inflating traffic to compensate for ever-lower per-user value.

Facebook, however, has convinced large numbers of otherwise intelligent people that the magic of the medium will reinvent advertising in a heretofore unimaginably profitable way, or that the company will create something new that isn’t advertising, which will produce even more wonderful profits. But at a forward profit-to-earnings ratio of 56 (as of the close of trading on May 21), these innovations will have to be something like alchemy to make the company worth its sticker price. For comparison, Google trades at a forward P/E ratio of 12. (To gauge how much faith investors have that Google, Facebook, and other Web companies will extract value from their users, see our recent chart.)

Facebook currently derives 82 percent of its revenue from advertising. Most of that is the desultory ticky-tacky kind that litters the right side of people’s Facebook profiles. Some is the kind of sponsorship that promises users further social relationships with companies: a kind of marketing that General Motors just announced it would no longer buy.

Facebook’s answer to its critics is: pay no attention to the carping. Sure, grunt-like advertising produces the overwhelming portion of our $4 billion in revenues; and, yes, on a per-user basis, these revenues are in pretty constant decline, but this stuff is really not what we have in mind. Just wait.

It’s quite a juxtaposition of realities. On the one hand, Facebook is mired in the same relentless downward pressure of falling per-user revenues as the rest of Web-based media. The company makes a pitiful and shrinking $5 per customer per year, which puts it somewhat ahead of the Huffington Post and somewhat behind the New York Times’ digital business. (Here’s the heartbreaking truth about the difference between new media and old: even in the New York Times’ declining traditional business, a subscriber is still worth more than $1,000 a year.) Facebook’s business only grows on the unsustainable basis that it can add new customers at a faster rate than the value of individual customers declines. It is peddling as fast as it can. And the present scenario gets much worse as its users increasingly interact with the social service on mobile devices, because it is vastly harder, on a small screen, to sell ads and profitably monetize users.

On the other hand, Facebook is, everyone has come to agree, profoundly different from the Web. First of all, it exerts a new level of hegemonic control over users’ experiences. And it has its vast scale: 900 million, soon a billion, eventually two billion (one of the problems with the logic of constant growth at this scale and speed, of course, is that eventually it runs out of humans with computers or smart phones). And then it is social. Facebook has, in some yet-to-be-defined way, redefined something. Relationships? Media? Communications? Communities? Something big, anyway.

The subtext—an overt subtext—of the popular account of Facebook is that the network has a proprietary claim and special insight into social behavior. For enterprises and advertising agencies, it is therefore the bridge to new modes of human connection.

Expressed so baldly, this account is hardly different from what was claimed for the most aggressively boosted companies during the dot-com boom. But there is, in fact, one company that created and harnessed a transformation in behavior and business: Google. Facebook could be, or in many people’s eyes should be, something similar. Lost in such analysis is the failure to describe the application that will drive revenues.

Google is an incredibly efficient system for placing ads. In a disintermediated advertising market, the company has turned itself into the last and ultimate middleman. On its own site, it controls the space where a buyer searches for a thing and where a seller hawks that thing (its keywords AdWords network). Google is also the cheapest, most efficient way to place ads anywhere on the Web (the AdSense network). It’s not a media company in any traditional sense; it’s a facilitator. It can forget the whole laborious, numbing process of selling advertising space: if a marketer wants to place an ad (that is, if it is already convinced it must advertise), the company calls Mr. Google.

And that’s Facebook’s hope, too: like Google, it wants to be a facilitator, the inevitable conduit at the center of the world’s commerce.

Facebook has the scale, the platform, and the brand to be the new Google. It only lacks the big idea. Right now, it doesn’t actually know how to embed its usefulness into world commerce (or even, really, what its usefulness is).

But Google didn’t have the big idea at the company’s founding, either. The search engine borrowed the concept of AdWords from Yahoo’s Overture network (with a lawsuit for patent infringement and settlement following). Now Google has all the money in the world to buy or license all the ideas that could makes its scale, platform, and brand pay off.

What might Facebook’s big idea look like? Well, it does have all this data. The company knows so much about so many people that its executives are sure that the knowledge must have value (see “You Are the Ad,” by Robert D. Hof, May/June 2011).

If you’re inside the Facebook galaxy (a constellation that includes an ever-expanding cloud of associated ventures) there is endless chatter about a near-utopian (but often quasi-legal or demi-ethical) new medium of marketing. “If we just … if only … when we will …” goes the conversation. If, for instance, frequent-flyer programs and travel destinations actually knew when you were thinking about planning a trip. Really we know what people are thinking about—sometimes before they know! If a marketer could identify the person who has the most influence on you … If a marketer could introduce you to someone who would relay the marketer’s message … get it? No ads, just friends! My God!

But so far, the sweeping, basic, transformative, and simple way to connect buyer to seller and then get out of the way eludes Facebook.

So the social network is left in the same position as all other media companies. Instead of being inevitable and unavoidable, it has to sell the one-off virtue of its audience like every other humper on Madison Avenue.

Here’s another worrisome point: Facebook is a company of technologists, not marketers. If you wanted to bet on someone succeeding in the marketing business, you’d bet on technologists only if they could invent some new way to sell; you wouldn’t bet on them to sell the way marketers have always sold.

But that’s what Facebook is doing, selling individual ads. From a revenue perspective, it’s an ad-sales business, not a technology company. To meet expectations—the expectations that took it public at $100 billion, the ever-more-vigilant expectations needed to sustain it at that price—it has to sell at near hyperspeed.

The growth of its user base and its ever-expanding  page views means an almost infinite inventory to sell. But the expanding supply, together with an equivocal demand, means ever-lowering costs. The math is sickeningly inevitable. Absent an earth-shaking idea, Facebook will look forward to slowing or declining growth in a tapped-out market, and ever-falling ad rates, both on the Web and (especially) in mobile. Facebook isn’t Google; it’s Yahoo or AOL.

Oh, yes … In its Herculean efforts to maintain its overall growth, Facebook will continue to lower its per-user revenues, which, given its vast inventory, will force the rest of the ad-driven Web to lower its costs. The low-level panic the owners of every mass-traffic website feel about the ever-downward movement of the cost of a thousand ad impressions (or CPM) is turning to dread, as some big sites observed as much as a 25 percent decrease in the last quarter, following Facebook’s own attempt to book more revenue.

You see where this is going. As Facebook gluts an already glutted market, the fallacy of the Web as a profitable ad medium can no longer be overlooked. The crash will come. And Facebook—that putative transformer of worlds, which is, in reality, only an ad-driven site—will fall with everybody else.

By Michael Wolff

Michael Wolff writes a column on media for the Guardian; is a contributing editor to Vanity Fair; founded Newser; and was, until October of last year, the editor of AdWeek

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NEW YORK (Reuters) – Normally a big decline would set up Wall Street for a technical rebound. But that may not be the case this week, even after the market posted its worst weekly loss for the year and the S&P fell for six straight sessions.

With the corporate earnings season drawing to an end and recent U.S. economic data raising doubts about the pace of growth, the S&P 500, which is down 7.3 percent so far in May, could decline further this week as concerns about the financial health of Europe persist.

“What has changed in the world since April? We went from hearing a constant refrain that the world is awash in money and markets must go higher to hearing nobody wants to take any risk … All in a week,” said Peter Cecchini, global head of institutional equity derivatives at Cantor Fitzgerald & Co in New York.

The S&P 500 fell 4.3 percent for the week, its steepest weekly decline this year, and closed below 1,300 for the first time in four months.

The hotly awaited market debut of Facebook on Friday was marred by technology glitches on the Nasdaq in sending messages back to the brokerages that handled orders of Facebook Inc for individual, or “retail,” investors. Those problems rekindled fears about the market’s electronic trading system and caused some investors to stay away from equities.

Weighing on sentiment is a growing sense among investors that the euro zone debt crisis is nearing new heights, fueled by fears of the potential for a Greek euro exit and the deteriorating health of the Spanish banking system.

Solid corporate earnings and upbeat U.S. economic indicators had fueled the rally in U.S. stocks, offsetting jitters over Europe. But with earnings almost out of the way and data starting to disappoint, investors have shifted their focus back to headlines out of Europe.

Leaders of the Group of 8 major industrial economies were meeting this weekend to try to tackle the financial crisis in Europe. U.S. President Barack Obama, the G8 host, has urged European leaders repeatedly to do more to stimulate growth, fearing contagion from the euro crisis that could hurt the U.S. economy and his chances of re-election in November.

“The market is extremely oversold. Nonetheless, all major indicators remain on sell signals,” Larry McMillan, president of options research firm McMillan Analysis Corp, said in a report on Friday.

“We expect a powerful but short-lived rally should be coming soon. But at this point, barring some major shifts in our indicators, it may only be a rally in a larger down-trending market,” McMillian said.

THE FACEBOOK EFFECT

Facebook, the No. 1 online social network, disappointed investors with a tepid market debut on Friday. Shares rose a scant 0.6 percent – nowhere near expectations for double-digit gains on the first trading day – and the day was marred by technical problems due to huge order volume. The stock closed at $38.23 after falling as low as $38, its initial offer price.

The disappointing debut curbed investors’ appetite for other social media stocks. Hardest hit was Zynga Inc , which closed down 13.4 percent to $7.16 after falling as low as $6.40. The stock was temporarily halted twice due to sudden declines.

LinkedIn shares fell 5.7 percent to $99.02, and Groupon fell 6.7 percent to $11.58. Zynga and Groupon, both of which went public late last year, are also trading below their IPO prices.

Despite the disappointing market debut and the weak performance of social media stocks, market participants are still optimistic about Facebook going forward.

“In any brand new area, social media in this case, most are going to be losers and only some are going to be winners. Yes, the IPO was disappointing, but Facebook is clearly the winner here and others aren’t,” said Randy Warren, chief investment strategist at Warren Financial Service.

The coming week’s economic data includes April’s existing home sales on Tuesday at 10 a.m. EDT (1400 GMT). Existing home sales are forecast at a 4.60 million-unit annual, up from 4.48 million in March.

New homes sales figures are due on Wednesday at 10 a.m. EDT. April’s new home sales are also expected to post an increase, gaining about 7,000 units over a 328,000-unit annual rate in March.

Initial jobless claims and durable goods orders will be published on Thursday at 8:30 a.m. Consumer sentiment is due at 9:55 a.m. on Friday.

For the week, the Dow was off 3.5 percent and the Nasdaq was down 5.3 percent.

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