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Facebook Stock's One Last Chance?

Companies / Tech Stocks May 20, 2013 - 03:58 PM GMT

By: Money_Morning


Diane Alter writes: One year ago, Facebook stock (Nasdaq: FB) made its trading debut in one of the most highly anticipated initial public offerings ever.

While it's okay to offer a congratulatory happy anniversary, it's been anything but a honeymoon for the company and investors.

Some 421 million shares were sold, raising $16 billion, giving Facebook a whopping $104 billion valuation.

Then the disastrous story began: Shares were priced at $38, opened at $40, and then, within 10 market hours after the pricing, Facebook stock flailed. Technical glitches at the Nasdaq caused a delayed open, late executions and reports, and mispriced trades.

Lawsuits are still pending.

The IPO was a costly reminder to retail investors "that the playing field is not a level one, Mercer Bullard, a securities law professor at the University of Mississippi School of Law told MarketWatch.

"Some investors got more information than others. Those that didn't, ended up perhaps buying more Facebook stock than better-informed investors left on the table," he said.

Facebook stock has yet to recover.

Four months after the fabled IPO, shares bottomed at $17.55. The stock found some stability in the mid-20s range, and currently trade around $26.40.

Now at the one-year mark, most hopes for a comeback have vanished. Will year two be even worse?

Facebook Stock Year Two

When Facebook went public, its message was "we focus on user growth and engagement and the revenue will take care of itself."

Obviously, that hasn't been the case and Facebook is trying to get it right.

In efforts maximize profit potential from its massive user base, Facebook launched a number of initiatives since its IPO, including an e-commerce store, gift registry, pay-for-post program and Facebook Home, a software for smartphones.

However, one month into its release, Home is already labeled a failure.

Facebook stock has reflected these disappointments.

Year-to-date, the Dow is up 16.2%, the S&P 500 has added 15.7%, and the Nasdaq is better by 14.8%. Meanwhile, Facebook shares are down nearly 10%, with shares 30% less than the IPO price.

First quarter 2013 financials, released a few weeks ago, were mixed.

While revenue grew 38% year-over-year to $1.46 billion, aggressive moves to monetize its 1.1 billion users who are increasingly accessing the site via mobile, are eating away at desktop ad revenue-its real cash cow.

In addition, Facebook's Website lost 10 million visitors in the U.S. over the past year, market research firm Nielsen reports.

Also falling is the number of minutes Americans spend of Facebook. The average time in December was 121 minutes; in February, it dipped to 115 minutes, according to comScore.

While smartphone minutes doubled in a year's time to 69 a month, that growth is no guarantee it will compensate for diminishing desktop usage.

Additionally, the switch to mobile comes with conundrums. Facebook must figure how to size ads to mobile, how to avoid overwhelming users with commercials, how to guard privacy and keep users engaged.

Facebook is also losing some of its swagger. The younger crowd no longer finds it "cool," and is defecting to rival sites like Tumblr and Twitter.

Facebook even acknowledged the challenge of keeping teens engaged it its annual 10-K filed with the SEC in February:

"We believe that some of our users, particularly our younger users, are aware of and actively engaging with other products and services similar to, or as a substitute for, Facebook. For example, we believe that some of our users have reduced their engagement with Facebook in favor of increased engagement with other products and services such as Instagram. In the event that our users increasingly engage with other products and services, we may experience a decline in user engagement and our business could be harmed."

So, Happy Anniversary, Facebook... we're not buying your stock, but we wish you the best.

Facebook stock's one last chance?: We recently learned of a new development at Facebook that is giving the company one more chance to turn things around. We asked the person who would know best - our resident Internet marketing expert - if the new Facebook Exchange could actually revive the flailing Facebook stock. Check out his inside scoop here.

Source :

Money Morning/The Money Map Report

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