Facebook, battling to convince the market that it can grow its revenue to justify its huge $100 billion value at its recent listing, is now trading its shares at less than half their IPO price, with the founder, Mark Zuckerman, losing half of his personal wealth – taking a $10 billion share-devalue beating.
When Facebook listed in May it was valued at $100 billion, with a share price float of $38. But as of Monday this week they had hit a new low of $18,57, giving the social networking business a revised value of only $40,61 billion.
The latest share price drop is due to the ending of a lock-up period that allows some of the earlier investors to sell more of their shares. This increased the pool of available shares by 60%. If this is not bad news enough, market watchers suspect that the share price might be mauled even further as larger shareholders consider cutting their losses before they end up cutting their throats. In the next few months more bad news potentially awaits Facebook as more lock-up periods expire – including lock-up periods that have tied staff into their once platinum-tipped shares.
Facebook is just not impressing the market and, while it was valued at more than Nike and Goldman Sachs – combined – when it listed, its fortunes are fading fast. True, it boasts almost 1 billion users – and its mobile users are growing in numbers. But the leaders of Facebook have shown no clear way of just how they are going to make money out of the growth of their mobile users. It is easy to see where the company’s problem lies – but not as easy to fix this problem.
It is going to require more than smoke and mirrors and fancy press statements to impress investors – and to prevent more from selling their shares. A workable business plan needs to be floated – one that can show that there is light at the end of the revenue tunnel for the young, but ailing, Internet behemoth. The way things are continuing to unfold, it seems possible that Facebook’s share price could drop to the $10 mark – or lower – before the end of the year.
With Zuckerman’s once-astonishing fortune now sitting at $9.5 billion, a drop towards the $10 per share mark could see a few more billion wiped off his personal fortune. No-one is contesting that Zuckerman has a brilliant mind – and came up with a brilliant business invention – but does he have the business acumen to deliver on his promises? Or does he have an executive team that is going to be able to step in and turn the dough into doughnuts? If not, his rags-to-riches story will end up with a storyline twist, turning it from a fairly tale into a horror riches-to-rags nightmare.
Issued by Bryn Evans (Inkworks)