INVESTORS have stepped up their attack on Facebook with a $1 billion gamble that the social network’s shares will fall further.
Hedge funds and other speculators have launched a short- selling raid in the belief that Facebook’s woes will grow. The online giant has lost more than 27% of its value since its mishandled stock market debut a fortnight ago.
The attack could heap more pain on shareholders who bought in at the $38 offer price. After a 6% slide on Friday, the stock closed at $27.72. It could also confirm Facebook as one of the worst-performing floats by a big player in recent decades.
About 33m shares — 8% of the stock sold at the float — are on loan to short-sellers, according to Data Explorers, the research group. Short-sellers borrow stock and sell it into the market hoping to buy it back at a lower price later.
The speculators have been spurred into action by concerns over Facebook’s growth. Although it boasts nearly a billion users, it has yet to work out how to make money from smartphones, an increasingly popular gateway to the site. Moreover, the number of ads on its computer-based site has fallen this year in America and Britain, countries which account for more than half of profits.
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“Facebook’s ability to make money is still weak compared with Google,” said Ian Maude at Enders Analysis. Google earns six times as much ad revenue from its average user compared with Facebook.
“People are beginning to realise that Facebook is not invincible and there are a lot of questions over future revenue growth,” Maude added.
Facebook and its Wall Street advisers face legal action over claims that they gave privileged information to big clients. Analysts at the leading underwriters “selectively disclosed” downgraded revenue forecasts to “preferred investors”, according to one of the class-action suits.