Facebook makes a comeback, options volume soars

Thu May 31, 2012 6:16pm EDT
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By Doris Frankel and Edwin Chan

(Reuters) - Facebook Inc bounced back from record lows in frenetic trading on Thursday to finish in positive territory for the first time in four days, lifted in late trade by a U.S. market rebound and a brokerage upgrade.

Facebook, the No. 1 Internet social network and first U.S. company to debut with a capitalization of more than $100 billion, rose 5 percent to close at $29.60. Options volume skyrocketed with bets ranging from a sharp rebound to a sustained selloff, promising more volatility to come.

Facebook remains 22 percent below its $38 IPO price, walloped by doubts about its lofty valuation and ability to sustain the rapid growth that has made it a business and cultural phenomenon.

On Thursday, Pivotal Research analyst Brian Wiesner -- among the first to slap a "sell" rating on the stock -- upgraded the shares to hold, arguing that the current price incorporated much of the inherent risk in Facebook's business.

"Short-term we are still cautious but there should be reasons for optimism later this year and next," said Wiesner, who put a sell on the stock when Facebook first priced its IPO.

Wall Street remains concerned that Facebook, while boasting nearly a billion users worldwide and dominating Internet social networking, will have difficulty translating its growing presence on smartphones and other mobile devices into revenue.

Analysts say wringing profits from smartphone users is crucial to long-term growth, particularly with rivals Google Inc and Apple Inc dominating the mobile arena.

The current weakness "feels a lot like it's macro-driven as much as anything," Wieser said. By late 2012, "Facebook will by then have cycled through difficult comps and investors can better focus on the fundamental growth story."   Continued...

Facebook logos on a computer screen are seen in this photo illustration taken in Lavigny May 16, 2012. REUTERS/Valentin Flauraud