Few 'Likes' for Facebook from hedge-fund moneybags
Don't short our stock... bitch
Major US hedge funds are steering clear of Facebook stock, according to their second quarter filings yesterday.
Famous investor George Soros has a bunch of shares, along with Steve Cohen's SAC Capital Advisors, John Thaler's JAT Capital Management and Chase Coleman's Tiger Global Management, which invested in Mark Zuckerberg's social network before it went public.
But a lot of the other hedge funds are avoiding the web biz, which encourages punters to 'like'
friends advertisers. It is also possible that fund managers have offloaded the shares they bought at the height of Facebook fever - which quickly evaporated after the network's lacklustre debut.
The network's stock dropped 5.65 per cent yesterday as fellow internet firm Groupon reported results that disappointed investors. Hedge fund managers also showed a lack of interest in the tat bazaar.
Soros' firm holds just 341,000 shares, while Cohen's carries 1.56 million and Thaler's fund has a measly 151,450. Coleman's hedge fund still holds close to two million Facebook shares.
Other funds are rumoured to be betting against the social network in their short positions, which they're not required to disclose to the Securities and Exchange Commission in their quarterly filings, Reuters reported. A short position makes money only if the stock drops further in price. Simply put, the fund borrows the stock from a broker and sells it at the current market price. When the loan's time is up, the fund buys back the same number of shares from the market and returns them to the broker. Assuming the stock price fell between the sell and buy, the fund makes a profit.
Shorting is a great way for funds to make money out of nothing. For example, if a fund borrowed a million Facebook stocks and immediately sold them at the beginning of June for $27.72 each, it would have made at least $7m by buying them back at the close of play yesterday for $20.38 a piece.
Altogether, Facebook's market value has plunged 46 per cent since its initial public offering on 18 May when it was valued at more than $100bn. It's a still a massive company, but fears about its future in a mobile world, where the network has yet to make serious cash from advertising, and concerns that it was well over-valued in the first place have hit the stock hard.
Other firms in the new vanguard of web companies, including Groupon and Zynga, also appeared to be flaky once they were subjected to the keen scrutiny of the markets. Their codependence, such as Zynga's need for Facebook, and single streams of revenue, such as web advertising for Facebook and daily deals for Groupon, mean they are not an investor's favourite bet. ®