Why Facebook has declined

There are several factors but they basically all stem from the desire of the company to maximize the proceeds from the offering to the detriment of investors.

In a typical successful offering, the company and the underwriters leave a little on the table for the investors, which is to say the deliberately underprice the offering, say by 10%, to give the investors who buy at the offering price a small premium in the aftermarket.

This helps the underwriters sell the deal and keeps the investors happy with the company. 

Facebook was the deal of the year and sought after by many investors. Many investors sought stock in the deal just for the prestige of saying they participated in the offering.

The company took advantage of this by selling as much stock as possible, soaking up all of this excessive demand, leaving nothing on the table. 

Thus, no one was left to buy in the aftermarket. 

This was made worse when the company increased the amount of stock offered at the last minute and also started revealing bad news about the business.

Many buyers  in the offering thought they would not get as much stock as they asked for so they asked for more than they actually wanted. When their entire allocation was filled, they knew the demand was soft and so they sold and they also sold because they had then more stock than they really wanted.

The shorts, seeing this, smelled blood in the water and did a bear raid, dumping stock to push the price down.

This created down side momentum.

With this price drop, people started taking a critical look at the company. The shorts also encouraged this surge in bad opinions about the company. 

In fact, Facebook's business model has flaws. One thing that is not generally realized is that professional Internet marketers create many accounts. Facebook touts as its most important metric that they have one billion users. If however, an Internet market creates 100 accounts, the actual user count is much lower. 

In any event, the price decline is an example of what I call pendulum theory. The more you pull a pendulum one way, the more it swings the other. And so it is with stocks. The more they are overpriced, the more they will tend to swing to underpriced.

 Facebook was an easy short as it was the subject of wild mass public enthusiasm. Such stocks always are overpriced. 

The sheer size of the offering also hurt. Facebook's large offering soaked up much of the money that would have been allocated to such stocks. As they say, it took all the air out of the sails.