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The Facebook Hype

Facebook's $16 billion initial public offering (IPO) – the third-largest ever in the U.S. -- was a market love affair that quickly turned sour.

With a subscriber base of one billion people – or around 40 percent of the world's Internet population -- the social network site had investors salivating over its earnings potential. Seeing huge interest, Facebook raised its target price range from $28-$35 to $34-$38 per share three days before the listing.

Many investors on Wall Street had no doubt that Facebook's shares would pop on their first day of trading. But the company's debut on May 18 fell far short of the hype. The website's stock closed flat on Day 1 and declined almost 11 percent on Day 2. Analysts attributed this to the company's rich valuation and the Nasdaq's computer glitches on the first day of trading, which dented confidence in the stock. The disappointing debut performance scared away investors for many months, with its stock falling as low as $17.73 at the beginning of September – less than half the list price of $38.

After almost half a year of losses, Facebook's stock has started to pick up momentum. Since November, its shares have risen 30 percent, boosted by investor relief that the expiration of trading restrictions on a large block of shares (owned by early investors and company employees) in mid-November did not lead to a wave of selling. However, the stock continues to languish far below its offer price at $27.70.

Photo: Emmanuel Dun | AFP | Getty Images