The Facebook stock price seems to be on a slippery slope downwards since the quarterly earnings call last week. Facebook highlighted several risks in its IPO Filing stating that it might have challenges in growth, and challenges in monetising its mobile platform through advertising.
Here are the warnings from the risk factors section of the initial filing:
1. If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, financial results, and business may be significantly harmed.
3. Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue and financial results.
4. Facebook user growth and engagement on mobile devices depend upon effective operation with mobile operating systems, networks, and standards that we do not control.
5. We may not be successful in our efforts to grow and further monetize the Facebook Platform.
16. We expect our rates of growth will decline in the future.
30. We cannot assure you that we will effectively manage our growth.
So why are we so surprised with the $157 million loss reported last week? Facebook told us that there would be challenges with its growth. The numbers are also lower as Facebook had to make payments to early investors.
The poor results are to be expected. But compare these figures againt a profit of $240 million in the same period in 2011 and it all looks really bad. But even though the results were slightly ahead of analysts' expectations the share price has continued to fall, hitting a low of $22.28 on Friday.
And it has continued its downward trend. The share price opened this morning at $20.82 and dropped to a new low of $20.17 earlier this morning.
More shares will be hitting the market soon. Facebook will free up almost 1.7 billion shares as the restrictions on employees selling shares are lifted over the comoing months.
Facebook has floated 484 million shares, however this will increase. More than 211 million shares will be added in August, up to 355 million shares will be added in October and 1338 million in November.
And Facebook seniors are leaving too causing a talent gap in the platforms team.
Marketing director Katie Burke Mitic announced that she was leaving Facebook after 2 years. Jonathan Matus, Mobile marketing manager announced his departure as did Ethan Beard. Beard announced yesterday that after four years, he was ‘leaving Facebook to seek (his) next adventure’.
With the instability in the markets and the departure of its key staff Facebook does not seem to be a good long time buy if the stock flipping by Mutual fund managers is anything to go by.
Fidelity Investments was an early buyer of Facebook stock, purchasing over $200 million of private stock in early 2011. At IPO Fidelity Investments purchased further shares but sold these only six weeks later.
The Wall Street journal reckons that it is unusual for Mutual funds to hold stock for such a short period of time. Funds are usually purchased with a view to long term investment.
Last Tuesday Facebook stock hit an unusually high trading volume of 45,229,179 shares -- well above its average volume of 21,980,696 shares traded per day.
For small investors who bought at $38 and above, watching the stock price plummet like this must be a bitter pill to swallow.
$19 per share is not a positive return on their investment at all...