Facebook’s financial fortunes go from bad to worse with its shares dropping at one stage to $19.67, about half the offer price, as investors who bought in before the massive IPO were allowed to sell a tranche of 271m shares.
These investors (whose number includes agency group Interpublic) were allowed to sell for the first time since the IPO and many chose to. They, unlike the millions of hapless ‘retail’ investors who bought in the IPO, will still book a profit. Some retail investors, by contrast, chased the price up to $45 immediately after the IPO.
And the big test for Facebook has still to come. Employees will be able to sell shares in November and many of them will choose to cut what they will see as ‘losses’ in a company that is now worth $43bn as opposed to its $100bn IPO valuation of a few months ago. Founder and CEO Mark Zuckerberg’s holding has been reduced from $19.1bn to $9.9bn, still a fair old fortune of course but, at the current rate, Zuckerberg is losing one worker’s annual wage every few minutes.
My colleague Paul Simon’s estimate that Google shares were worth less than $8 at IPO (meaning the company was actually worth $21bn rather than $100bn) looks more prescient by the day.
What, if anything, can Facebook do about it? Regarding the share price and company valuation, not very much at all. The company was valued on a ludicrous 100 or so times earnings (Google is on 16) and is never likely to justify that rating on fundamentals.
But it does need to show that it has a credible plan to extract substantial revenues from its billion or so users, in particular by finding ways to make money out of mobile Facebook users. Mobile as an ad category is booming but there remain doubts as to whether or not Facebook is a good match for mobiles. Tablet computers are fine but Facebook probably needs a new mobile-only interface to share in the boom to the extent that it needs to.
And there’s always the nagging fear that some other social medium will come along and steal Facebook’s thunder, just as it slaughtered Rupert Murdoch’s one-time social media kingpin MySpace.