FB Stock Stock Crashes 40% Below Initial IPO Offering

Facebook reported financial results today. Revenues were $1.18 billion compared to analyst estimates of $1.15 billion. Earnings were $.12 per share, in line with analyst estimates. After tax earnings were negatively impacted by costs relating to vesting restricted stock units, which were just under $1 billion. These units represent stock owned by employees that now may be sold.

FB's stock price increased at the moment the earnings announcement was made, but has declined precipitously since that time to slightly more than $27 per share, nearly 40% lower than the IPO offering price; the price reached a new lowpoint. One of the most critical comments was that the release was very light on details dealing with the company’s most important issues - mobile growth and advertisement; my comments are correspondingly sparse.

FB has 955 million users, half of which are daily users and half of which access FB with mobile devices. In his comments, CEO Mark Zuckerberg indicated that in five years there will be 4-5 billion smartphones in the world presenting a huge opportunity for the company and increasing the urgency of being able to monetize this aspect of the business. Mobile access at FB has increased 67% during the past year. 

As far as advertising is concerned, Zuckerberg said that social advertising offers better profit opportunities than other kinds of ads. By integrating more social ads into the experience for users, the company will realize great synergies.

Zuckerberg made some comments about staffing up to improve the technical capabilities of FB. This, he said, will greatly enhance FB’s ability to create more profitable applications.

In summary, it appears that the company’s growth is slowing from levels that would justify its huge valuation; lower than expected growth directly relates to stock price, and FB’s dropped significantly.

The company has an almost cavalier approach to its investor relations, encouraging a long-term perspective by its investors. FB is focused on monetization, ads and mobile usage, but did not provide much insight into these issues up to this moment.

I would expect the company’s stock to be under pressure in trading tomorrow. 

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Sal Bommarito

I spend most of my time writing a screenplay based on three of my published novels.

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