For reasons that can’t always be explained, some numbers acquire symbolic meaning, and in the case of Facebook’s stock price, the magic number was $20: somehow that figure became a meaningful benchmark to analysts and stockholders -- maybe because it’s a nice round number that’s also roughly half the original IPO price of $38. Whatever the reason, there’s no denying that Facebook’s prestige has suffered an additional blow as the stock dips below $20 for the first time today, to $19.88 at the time of writing -- down from $20.77 when the market opened.
Sometimes stock movements may seem arbitrary or random, but in Facebook’s case, the steady decline since the IPO leaves no doubt that investors have no confidence in the social network’s business model as it is currently constituted. Indeed, Facebook’s advertising platform -- the key to making it a sustainable business -- almost seems to have been an afterthought, as Mark Zuckerberg and his team focused on growing the user base and increasing engagement. Having over 900 million members is great, and boosting engagement will doubtless yield benefits down the road, but without a convincing strategy for monetizing all those users in the near term, Facebook is toast as far as investors are concerned.
As noted in a previous post, doubts about Facebook’s current advertising model are bubbling up everywhere. GM’s decision to publicly dump Facebook, akin to breaking up with someone in the cafeteria in front of the whole school, was only the first step. More recently, a new eye-tracking study suggested that Facebook will have a hard time monetizing mobile traffic through display advertising, and over the last week bloggers have circulated a note from a New York-based startup Limited Run, claiming that 80% of the clicks on its Facebook ads came from bots.
Facebook is fighting back: in June it released a study of social media ROI performed in collaboration with comScore, and advertisers have expressed interest in the new Facebook Exchange. But the impact of these
offerings, if any, lies in the future; for the time being, at least, investors just aren’t buying it.