Facebook (FB) Stock Woes: FB Looks Overseas For Profit

On Wednesday, Facebook announced that it has opened a new engineering office in London. Facebook joins other tech giants such as Google and Intel as part of the Tech City Initiative, the U.K. government’s investment in technology business to make London the next Silicon Valley.

The announcement comes at a crucial time for the social media company. Since its highly anticipated IPO in mid-May, Facebook’s stock price has fallen from $38 to $28.45, making it one of the most disappointing IPO’s ever. The news that Facebook is expanding to London may encourage investors who worry the company is not doing enough to develop its mobile phone strategy.

The creative culture of Silicon Valley is hard to replicate. London, and most notably Berlin, have been pushed to become the next tech boom city. British Prime Minister David Cameron created the Tech City Initiative, which directly supports about 300 companies in East London (“Silicon Roundabout”), wants London to be the “digital capital of Europe.” With other tech giants such as Google rapidly moving in, the neighborhood looks promising for a company like Facebook. 

Facebook needs all the innovative minds it can get. The IPO flop has pressured Facebook to prove that advertising can translate smoothly to mobile phones, which 50% of users use to connect to Facebook. The company hopes London, the first non-U.S. city to house Facebook offices, to provide the engineering talent to advance mobile phone development. 

"London is a perfect fit for Facebook engineering — it's a global hub, and it has a vibrant local startup community with lots of great technical talent," Lead engineer Philip Su said. "Our team in London will start small, focusing on building a core of great engineers, and then grow over time and eventually focus on building products in key areas like mobile and platform."

The announcement is well-timed. Facebook is expected to announce its first quarterly earnings as a public company on Thursday. Depending on the numbers, the news will either restore faith in the company’s money-making potential or plainly confirm that the IPO was overvalued. While it’s unclear whether London is a winning investment, the effort to expand its engineering team can only signal that Facebook is taking action to develop.