Seven months of Wall Street love goes poof for Facebook in seconds

By Lu Wang
(Bloomberg) --Looking for villains in the Facebook fiasco? Analysts and investors who have been relentlessly raising sales forecasts and bidding up the shares this year shouldn’t be absolved of all blame.

Since the start of the year, analysts had increased their estimates for second-quarter sales by 5 percent before the social-media company reported disappointing results Wednesday. Before the stock tumbled, institutional investors were on a buying spree, boosting ownership to 83 percent of shares available for trading, from 79 percent in January.


They’d brushed off Facebook’s data scandals in March and were blindsided as the company’s results showed they may have taken a toll on growth. Citing greater user control over privacy, Chief Financial Officer David Wehner said revenue would climb more slowly than expected in coming quarters.

And just like that, a year-to-date gain that had been as much 23 percent as of 4 p.m. Wednesday was reduced to nothing 30 minutes after Thursday’s open.

It’s a slap in the face for anyone who jumped on the momentum trade, pushing Facebook to one of the highest-valued companies in the world. As of last night, shares were trading at 13 times sales, trailing all but seven members in the Nasdaq 100 index.

The shares plunged 19 percent as of 10:28 a.m. in New York, heading for their worst day since the company’s 2012 initial public offering.