Facebook (FB) has made a remarkable recovery in its stock since its disastrous initial public offering in May 2012 at a price of $38 per share. The IPO price was based upon a valuation of about $100 billion. Subsequent to the IPO, the stock price tumbled to a low of $17.55 per share, a drop of over 46%. Today, the stock price hovered at around $32 per share prior to a “big” announcement by the company.
Once again, FB has disappointed investors. The company announced a future social search effort (a.k.a. Knowledge Graph Sales), as opposed to a massive open search initiative. A social search is a closed search that finds things that are shared with friends (preferences, pictures, etc.). For instance, a FB user will be able to find out “who plays tennis in his neighborhood.” This compares to an open search capability, such as “information about Abraham Lincoln.”
The market response to FB has been tepid to this point. Interestingly, Google, the leader of open searches, has risen in price because FB will not immediately challenge it.
Investors had hoped for a “big” announcement; there have been none since the IPO, yet FB stock has increased 60% in the last three months according to CNBC. Good news about the monetization of the FB mobile business would have really been a boon to the stock price, as would new software developments for mobile.
Exacerbating the situation is that this social capability is still in development and will not be widely available for a long time: translation - no new income. However, social search, when implemented, will further link FB friends, keep users on line for extended periods of time, and will absolutely be focused on FB’s mobile business.
The ability to slice and dice (using filters) is critical to FB. The amount of information among one billion users is monstrous, so harnessing it still remains a dream that will, eventually, launch FB into the future.
Traders are scrambling to find opportunities in the high tech space on the heels of this new FB announcement. In the long-term, Yelp could have problems if FB users resort to friends for recommendations about restaurants and the like. Google is safe for the time being because it is not involved in graph or social research. However, FB announced a joint effort with Bing, an open search company owned by Microsoft, and so Google could face some competition.
Waiting for the next FB earnings announcement is about all that hopeful FB investors have to look forward to at this time. Certainly, the company did not need a “non-event” event. At some point, investors could become really disappointed in disappointing earnings and disappointing technological announcements.