Commentary

Facebook Stock Drops (Again)

I swore I wasn’t going to write about the Facebook IPO again, but its stock just keeps doing interesting things -- namely, falling like a dead bird. Today Facebook dipped below $30 for the first time; the stock was trading at $29.01 at the time of writing, down 24% from its IPO price of $38. Ouch!

While this is doubtless causing a great deal of angst out there in retail investor land -- as evidenced by the crop of lawsuits targeting Facebook, Morgan Stanley, and NASDAQ -- it is also a vindication for the doubters who warned the stock price was too high (even when it had fallen to $32).

There were actually a good number of Facebook Cassandras heading into the IPO. One analyst who nailed it was Sam Hamadeh, founder of PrivCo, a private research firm, who predicted in an interview with PEhub.com the day before the IPO that the stock price will be down to $24-$25 by the end of the year. While some might have dismissed Hamadeh as alarmist, now the only question is whether his prediction will come to pass six months early.

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There are certainly more potential stumbling blocks for Facebook in the second half of the year, as Hamadeh pointed out, including potentially weak earnings results in August and November. While it’s hard to know whether Facebook will make its targets, the year is already off to a weak start with revenue declining 6% in the first quarter from the fourth quarter of 2011 -- the first ever quarter-to-quarter drop for Facebook.

As Hamadeh also noted, there are signs that Facebook’s meteoric growth is finally subsiding. Facebook attracted 158.7 million unique U.S. visitors in April 2012, according to comScore, up just 3% from 154 million in April 2011. Sequentially the April figure is also down slightly from 158.9 million unique visitors in March 2012, also per comScore.

And on top of all this worrisome data, the advertising model for Facebook is still up in the air. Before the IPO another prescient analyst, Nate Elliott of Forrester, warned that “Marketing on Facebook doesn’t work very well, and marketers can’t count on things improving anytime soon. We wish we could predict this IPO would serve as a new beginning for Facebook’s marketing offering, and that a new focus on becoming a grown-up business would inspire the company to put even half the energy into serving advertisers that it does into serving users. But we doubt Zuckerberg’s going to wake up any day soon having acquired a taste for advertising, or even a proper understanding of it. And so every day more smart marketers are going to wake up and look for other places to dedicate their social resources.”

1 comment about "Facebook Stock Drops (Again)".
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  1. Mark Burrell from Tongal, May 30, 2012 at 2:14 p.m.

    I find it odd how much schaudenfraude there seems to be here in regards to an American Startup that's connected 1 billion people in less than 10 years? I also find it ironic that the analysts/experts don't even have access to Facebook at work. So pardon my French, but the F do they know and why are we listening to them? I was somewhat indifferent here; just a guy who likes what Facebook stands for but now I am genuinely pissed and rooting for them.

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