Facebook discovers it’s hard to be liked
When the Nasdaq closed Wednesday, the stock price for Facebook stood at $32 per share, up $1 from Tuesday’s closing price, but still down more than 15 percent from last Friday’s initial public offering price of $38 per share.
On top of that, lawsuits were filed in federal court Wednesday against 33 underwriters of Facebook’s IPO, claiming investors lost up to $2.5 billion due to a mismanaged stock sale.
We’re not sure who first coined the term “Fadebook” to refer to Facebook’s stock status. It has appeared on several websites this week, and it seems and apt descrition of what occurred initially with one of the most overhyped IPOs in market history.
Of course, that could all change. Facebook stock prices may surge and reward early investors handsomely. In the meantime, there is plenty of finger-pointing over what went wrong.
For one thing, technical problems at Nasdaq delayed the debut of Facebook stock for more than a half hour Friday, making it more difficult to purchase stock initially.
Additionally, there are now reports that Morgan Stanley, the investment banking firm and a leading underwriter of the stock sale, leaked information about a negative financial report on Facebook just before the stock went on sale. Federal regulators are investigating.
Also, Facebook CFO David Ebersman may have soured stock sales by boosting the intitial sales price and increasing by 25 percent the amount of shares available in the days just before the IPO, The Wall Street Journal reported.
These events no doubt played a part in Facebook’s soft stock prices. But some experts see more fundamental problems with the company that derives most of its revenue from advertising.
Just last week, General Motors announced it was pulling its advertising from Facebook because there was no evidence it sold any vehicles through that advertising. Also, Facebook’s first-quarter revenue and profit declined from the fourth quarter of 2011, and its ad growth is not keeping up with the growth of its user base, according to The Wall Street Journal.
And, while its user base has continued to grow this year, to nearly 900 million users worldwide, much of that growth has come in less-developed areas where advertising may have less impact. North American Facebook users actually declined slightly from March 2011 to March 2012, according to Internet World Stats.com.
More problems are caused by Facebook’s privacy issues, such as the data the company collects and stores about its users.
We don’t know what the future holds for Facebook or all of the social media. With his personal wealth reportedly exceeding $16 billion, we doubt that cofounder and CEO Mark Zuckerberg will be panhandling on street corners any time soon.
But the stock prices in the first week following the IPO, combined with other financial and consumer data, suggest Facebook may not be the unrelenting Internet force it has long been projected to be.