Ah shame, poor Facebook. In the short time its stock has been on the market, it’s taken a complete pumelling. Not exactly the honeymoon present Mark Zuckerberg would’ve hoped for.
His company’s listing was one of those memorable events that you have to have watched. I was not watching because it was my daughter’s seventh birthday party (that was a success too). Okay, so the listing did not actually go off as planned — a glitch of sorts by NASDAQ saw many an investor and folks hoping for a giant pop confused and mad. I guess Morgan Stanley and Facebook are not completely happy with the outcome, but the stock listed and traded. And the Zuck got married on the Saturday to long-time girlfriend, Priscilla Chan.
Okay it was a bit of a rough start, but anyone who seriously thought it was a potent of things to come would’ve been boxed in with Scientologists, UFO spotters, and 9/11 conspiracy theorists. Yes, General Motors might have pulled its advertising, but other companies, including the small business kind, have made progress through targeting specific groups. I maintain that the known Facebook universe is far more valuable in the future when it manages to monetise its audience in a bigger way. Not if, but when.
So why has the going been so tough? At one point the stock was down a whopping 25% from its listing price (which is pretty poor really) and heading in the direction of the bottom end of the range from when they initially started — remember US$28? Twenty-eight to US$35 was the initial IPO range and then that steadily climbed because of institutional demand.
The company hit the jackpot because it managed to raise 180-million shares times US$38, or US$6.84-billion. That is currently 11% of the market cap in cash. Note that Google and Apple are more around 20% of the market cap in cash. There could be some kind of a clue there. The balance of the shares (421-million minus 180-million = 241 million) floated at US$38 were early shareholders exiting. Perhaps they look a whole lot smarter now. But what caused the stock to fall?
For starters, real options trading in the stock started. The other two reasons include a rumour that Facebook is about to buy Opera, a web browser with Norwegian roots. The Instagram deal meanwhile is being scrutinised by the antitrust regulators (nothing fresh about that news). And then some lawsuits pending against the company, amongst others, in terms of the listing process.
I expect those to go away. Boo hoo, the IPO did not go your way, you read the prospectus, you expected the stock to be hot — and if it was, there would not have been a single law suit.
There’s probably more pain in the short-term, Remember that the short-term investors take their chances in the same way that the long-term ones do — the problem that Facebook investors have right now is that there are many investment options, and Google and Apple are just two. Their forward valuations of these companies look a lot more attractive right now, both are trading closer to ten times the earnings. I would side with the folks that think this is an opportunity.
The next and most important question: where to for the stock? Well there could be some short sellers stepping up the pace, there could be staggers throwing in the towel, the pent-up demand could return to the screens. The future as they say, is unknown. Let us watch it.