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Facebook Shares Plunge Sharply For Second Day

(c) Sky News 2012

Facebook shares have fallen sharply for a second day, leaving them 18% below last week's $38 (£24) opening price.

The social network stock dominated Nasdaq (Nasdaq: ^NDX - news) trade again, with shares falling another 8.9% at the close on Tuesday - the third day of trading - as accusations flew that leading underwriters had cut their projections ahead of the initial public offering (IPO) on Friday.

Branded 'FB' on the Nasdaq exchange, the shares fell as far as $30.94 (£19.61) on Tuesday, and closed at $31.12 (£19.73).

At that price the company has seen more than $19bn ($12bn) wiped off its value since last week.

Facebook stock fell more than 8% at Tuesday's opening, before rallying to 4.2% down within 90 minutes of opening.

The company's shares fell 11% on Monday as the hype surrounding the firm's flotation evaporated. They closed flat on Friday.

At the initial offering of $38 (£24), the company was valued around $104bn (£66bn), but doubts have persisted about whether it can convert its huge global following into revenue.

Facebook now has more than 901 million users worldwide, but some have questioned its ability to deliver that reach into a tangible return for advertisers.

General Motors (NYSE: GM - news) cancelled its $10m (£6.3m) marketing contract with the social network last week, claiming its adverts had little impact on its consumers' decisions to buy cars.

Investors said the firm would have to justify its valuation and demonstrate its maturity.

David Rolfe, chief investment officer at Wedgewood Partners, said: "Wall Street is a severe task master 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."

Questions have also been raised about the decision to price opening shares at $38, up from the initial range of $28-35 (£18-22) per share.

Financial blogger and chief market strategist at Fusion IQ in New York (Frankfurt: A0DKRK - news) , Barry Ritholtz, blamed the company, its underwriters, and the exchange itself.

He said: "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."

Founder Mark Zuckerberg rang the opening bell by remote internet link from California on Friday, surrounded by thousands of cheering Facebook staffers.