Facebook Stock Price Points to Mobile Problem

By Jason Boog on May 30, 2012 12:51 PM

Facebook stock opened at $28.69 a share this morning, down 24 percent compared to its original IPO price.
A CNET essay about the stock tumble pointed to a larger issue facing all media companies: mobile devices and apps aren’t the solution for media companies, they are the problem. As companies struggle to deal with our changing Internet habits, we all need to worry about these trends.  Check it out:

Facebook is hardly the only site with a mobile problem. Every site on the Web has a mobile problem … Global mobile data traffic more than doubled in 2011, for the fourth year in a row. Compared with all that growth, mobile ad spending is still small, and even though it’s projected to more than double in 2012 to $11.6 billion, according to Strategy Analytics, advertisers will still spend nearly four times as much on online advertising. Simply put: the world is going mobile, it’s hard to make money on mobile, and no one is feeling that more painfully than Facebook.

5 reasons Facebook's stock is still tanking

There seems to be no end in sight to Facebook's freefall, as investors find a host of new rationales to continue pummeling the social network's share price

posted on May 30, 2012, at 11:43 AM

Facebook's share price continues to fall as many investors bet that the social network's stock value has yet to truly bottom out. Photo: Ted Soqui/Corbis SEE ALL 137 PHOTOS

Best Opinion:  Wall St. Journal, Mercury News, New York...

Facebook's share price dipped below $29 for the first time on Tuesday, and remains well below the $38 offering price at which it debuted on May 18. Facebook's continued slide on the stock market has dented optimism that Mark Zuckerberg's addictive social network would claw its way back toward its original price after a series of initial missteps. Here, five reasons Facebook's stock is still in decline:

1. Investors are betting against Facebook
Facebook's stock debuted on the options market on Tuesday, letting investors purchase contracts allowing them to buy or sell the stock at a fixed price in the future. Options contracts essentially enable investors to bet on a stock's direction, and most traders gambled that Facebook's "beaten-down shares have further to fall," say Kaitlyn Kiernan and Jonathan Cheng at The Wall Street Journal. The most highly traded option predicts that Facebook's stock will slip to $25 by mid-July.

2. Expensive buyout rumors are swirling
Rumors emerged over the weekend that Facebook is considering buying Opera Software, a Norwegian software firm that specializes in cellphone internet browsers. Analysts estimated that Opera's price tag could rise to $1 billion with competitive bidding, stoking concerns that Facebook is "eyeing another potentially pricey acquisition" right after buying the revenue-less photo-sharing app Instagram for $1 billion, say Brand Bailey and Jeremy C. Owens at the San Jose Mercury News. And Facebook's alleged flirtation with Opera only underscores its weakness in the smartphone market.

3. Investors are wary of a social media bubble
"Investors are increasingly sensitive to the fleeting nature of social media," and serious questions are being asked about whether Facebook and similar companies can pull in revenue in the future, says Matt Krantz at USA Today. Facebook is not the first tech company to see its share price fall after an IPO: The daily deals site Groupon, the internet radio service Pandora, and online videogame maker Zynga are all getting punished by the stock market. 

4. Supply still exceeds demand
Facebook is getting hammered this week for the same reasons that its IPO was marred. The company likely overpriced its stock and sold too many shares, creating a surfeit. Investors are still searching for the correct price, and "Facebook right now does not know where the bottom is," Brian Overby, an analyst at Tradeking, tells The New York Times.

5. The stock market is a circus
This is what happens when you go public, says Kevin Roose at New York. Facebook is now subject to the "short-termism of public investors" and "the carping of the CNBC crowd when stocks fall." Facebook has no choice but to get used to "attacks on the company's corporate governance structure, braying from the peanut gallery about possible acquisitions," and a "flood of awful headline puns about how the markets don't 'like' the company."

Facebook stock continues to drop, company loses $35 billion in value

Facebook's value has fallen from an estimated $104 billion to $61.98 billion in the two weeks since the company went public.
In after-hours trading the company went down another 0.5 percent to $28.69, TechCrunch reported. 
According to TechCrunch, that new share price gives the company a market capitalization of $79.02 billion, down from $115 billion market cap Facebook opened at on the day of its IPO when it started trading at $42.05 a share.
Wall Street traders and analysts have expressed concern over how Facebook could continue to grow. The social networking site boasts it has 900 million members, however they have shown no plan to monetize their membership.
More from GlobalPost: Facebook Camera: Facebook's own Instagram
Facebook has hinted at plans to release its own smartphone, however even this announcement did nothing to quell stock owners nerves.
"They are clearly looking at smartphones and are trying to become more vertically integrated with their users. They just don't want to be another app on Google's or Apple's platform," Ryan Jacob, of the Jacob Internet Fund, told Reuters. 
Jacob added that speculation that Facebook is debating working outside their main expertise of web and possibly planning another large acquisition may be unsettling to some investors.
Jacob also told Reuters he did not buy stock in Facebook when it went public, nor does he have any plans of buying into the company now.

Facebook stock drop fallout: Zuckerberg off top 40 richest list

By Deborah Netburn

May 29, 2012, 8:30 p.m.

Well, that didn't take long.
Less than two weeks after Bloomberg's Billionaire Index declared Mark Zuckerberg the 29th richest person on Earth, the Facebook founder has fallen off the list entirely.
Bloomberg's index measures only the wealth of the top 40 richest people in the world, and as of now, Zuckerberg is $800,000 behind the current No. 40 on the list -- Luis Carlos Sarmiento, a septuagenarian who controls more than a quarter of Columbia's financial industry.
Of course, no one is suggesting you feel bad for the 28-year-old newlywed -- as of Tuesday his estimated net worth was still a whopping $14.7 billion, according to Bloomberg. But on the other hand, the guy did lose $4.7 billion in just 11 days -- at least on paper.
(Could this be why he skimped on tipping a waiter in Rome?)
Zuckerberg's net worth reached a peak of $19.4 billion on May 18, the first day of the Facebook IPO, when shares of the company closed at $38.23.
By Tuesday, Facebook shares had dropped to just $28.84 a share, and Zuckerberg's fortune was down to $14.7 billion.
Zuckerberg did unload 30.2 million shares at $37.58 a piece on the first day of the IPO, bringing him a cool $1.1 billion, but he was planning to use most of it to cover taxes, according to a document filed with the Securities and Exchange Commission.
He still owns 503.6 million shares of the company.

Facebook Stock Could Fall Twice as Far Before It Hits Bottom

How much money did you lose in the Facebook (FB) IPO?"

It seems like an enormous number of investors are asking each other that question lately.

Yet, so far, estimates of how much money was lost in Facebook's IPO fiasco are mostly a matter of guesswork.

Based on a Bloomberg estimate that 25% of the company's IPO shares were set aside for -- and bought by -- Main Street investors, and given that the stock was down $7.80 a share on Tuesday from its offering price, it works out to about $820 million in losses to mom-and-pop investors across the country. That may significantly understate the damage, though, as day-trading investors may have bought and sold the stock multiple times over the course of the past few days, losing money all along the way.

And that's the good news. Now here's the bad: Whatever the right number is for how much we've lost so far ... get ready to double it.

Puts and Warrants and Tigers, Oh My!

That's the upshot of a new Bloomberg story late last week, which highlights a frightening trend among international investors: They're betting against Facebook. And they're betting big.

Here in the U.S., market data cruncher Data Explorers reports that the cost to short-sell Facebook has surged to a 10 on the company's 10-point scale. This suggests that professional "shorts" are so certain Facebook will fall further that they're willing to pay almost any price for a chance to bet against the stock.

Meanwhile, similar bets against Facebook are currently "the most actively traded structured products tied to Facebook since its IPO." Over in Europe, bankers at UBS (UBS), Commerzbank, and Julius Baer have traded hundreds of put warrants (contracts that entitle their owner to force a counterparty to buy a stock) over the past few days. Tied to tens of thousands of Facebook shares, these warrants (what we would call "options" here in the U.S.) are betting that the shares could fall as low as $22.

Bets that Facebook will go down, one market watcher notes, are now running more than 2-to-1 over bets that it will go up.

Are You Scared Yet?

If you own Facebook shares today, this has to be worrisome. While technically Facebook went public at an IPO price of $38, the fact is that most investors didn't get a chance to buy the shares until they began trading on the Nasdaq at an opening price of $42. Now we're hearing that some of the savviest investors from around the globe are betting the stock will fall to barely half that price.

But here's the thing ... they could be wrong. They could all be wrong.

Remember, even the scandalous reports that Facebook's IPO underwriters withheld information about slowing ad growth at the company aren't as frightening as we've been led to believe. At Morgan Stanley, for example, they were only enough to subtract about $0.03 per share from fiscal 2012 profit estimates, and only a nickel from 2013. Facebook's lead underwriter still thinks the company will earn at least $0.83 per share next year.

This suggests that the shares today cost about 36 times forward earnings, which may not be overpriced after all, if the company succeeds in hitting (or exceeding?) the 36% long-term growth rate that Wall Street has set for it.

Final Thought

What if the worst does happen, if the skeptics are proved right, and Facebook does fall to $22 or below? Even here, the news isn't all bad.

Facebook earned $1 billion last year. Morgan Stanley's new earnings estimate suggests the company could net more than $1.7 billion in 2013 -- 70% growth over just two years' time -- leaving it still a fabulously profitable company by any measure.
Even better, a $22 share price would mean that new investors (or old investors not too embarrassed to double down on an initially unsuccessful investment) could soon get a chance to own Facebook at just 26.5 times earnings.

When you get right down to it, maybe we should be hoping the shorts are right about Facebook after all.

Motley Fool contributor Rich Smith holds no position in any company mentioned.

Facebook Stock Falls Again

Facebook's stock is below $30 a share -- $28.25, to be exact, which is well off its $38 IPO price.

Pundits and observers have been weighing in non-stop the past few weeks since Facebook stock went public. But the IPO is not the only news surrounding the company. It's once again contemplating going into the mobile phone hardware business, according to Nick Bilton of The New York Times.

Let's catch up on a few recent threads regarding this issue and others revolving around the social network company whose founder is out on honeymoon.

The Street, via Forbes, offers what reads like a post-mortem of the company's IPO. But it's really a sour indictment of the IPO process as a whole: 

"How did a company best known for wasting people’s time (when it’s not violating their privacy) become the IPO stinker of our times? Because people forget that it’s been proven time and again that the only proven winners in IPOs are the issuers, insiders and underwriters, with favored clients like hedge funds and institutional investors the only ones able to benefit consistently from IPOs that perform well out of the starting gate."
Henry Blodget at Business Insider has a few thoughts on the prospect of Facebook going into the mobile hardware business. It's a bad idea, Blodget writes, because it smells of desparation:

"The move would clearly be defensive, not offensive. According to a Facebook employee quoted by Bilton, "Mark [Zuckerberg] is worried that if he doesn’t create a mobile phone in the near future that Facebook will simply become an app on other mobile platforms." Translation: Facebook is doing this because it thinks it has to, not because it wants to."

Matthew Ingram of GigaOm, via Business Week, offers his thoughts on Facebook's contemplation of the mobile phone business: He wonders whether it's a fatal mistake or an ambitious leap:

"After raising $16 billion in an IPO, Facebook obviously has the money to make some risky bets on building a brand-new business (or businesses). It clearly needs to do something to produce the kind of blockbuster growth that would justify what is still a phenomenally expensive stock price, and the company has said its future rests in large part on the mobile market. All of those factors have created a perfect storm of market conditions and desires, and the result could be a very big and potentially disruptive bet by Zuckerberg."

Slate's Matthew Yglesias says all this talk of a smartphone by Facebook is making investors nervous.

"It's possible that a Facebook phone will be a big success, but the dirty little secret of the smartphone industry is that it's mostly littered with failure. If you were talking about an industry in which a dozen firms are making fat profits, then obviously Facebook's going to want to get in the game. But of all the firms out there making smartphones, only Apple and Samsung are making any money."

Finally, Eliot Spitzer, also on Slate, returns us to the verisimilitude of the whole IPO process, which he says worked well for Facebook. Of the IPO, Sptizer writes:

"...what it reflects is that the company raised as much money as it could, instead of leaving money on the table for those lucky enough to have been given selective access to the initial offering."