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Why Facebook got crushed

What: Shares of freshly public social network Facebook (Nasdaq: FB) have dropped by 11%, following its historic and potentially overhyped IPO on Friday.

So what: After the IPO priced at US$38, shares had popped upward of 18% within the first minute of trading. Overnight, shares have touched as low as US$33, or 13% below the offer price — and on a broad-market rally day, no less. There’s no shortage of well-deserved scepticism over Facebook’s lofty valuation, and it seems the IPO glow is fading quickly.

Now what: Other social-media stocks are also falling in lockstep with Facebook’s plunge, including social gamer Zynga (Nasdaq: ZNGA) , down 11% at the low, and Renren (NYSE: RENN), down 15% at the low, among others. After seeing social media as one of the most sought-after sectors in tech for the past year, investors may be sobering up to the possibility that Facebook isn’t all it’s chalked up to be — especially at these prices.

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The Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by Evan Niu, originally appeared on fool.com

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