Facebook unfriended by investors!?
It has become the most talked-about IPO this year, the talks not always being as hunky-dory as the image of the social networking site has been.
When Facebook announced its decision to become a public listed Company at the beginning of this year, analysts had already started expressing their doubts about the valuation of the Company. In the midst of all ado, followed by the Facebook bosss rather surprising wedding, the IPO was launched last Friday at $38 per share.
Question marks remain about the stocks valuation, however. At the IPO price, the stocks valuation of $104 billion was believed to be way above the mark or wildly overvalued, as suggested by some finance blogs. The over 100 P/E ratio was nothing but monstrous relative to those of other well-known IT companies such as Google, Microsoft and Yahoo, the P/E of which stood below 20X.
The very next day after the IPO, the much-hyped stock lost about 11 percent as stock prices plummeted by around $4 per share on Monday, showing investors growing restlessness about the scrip. And then the regulatory blow hit the stock as well on Tuesday, with the Reuters sharing an insight about an analyst from Morgan Stanley - lead underwriter for the Facebook IPO - sharing his reduced revenue projections about the company very close to the IPO, only with institutional clients.
Needless to say, the accusations of selective disclosure have alerted regulatory bodies such as the SEC and the FINRA (Financial Industry Regulatory Authority) - the largest independent securities regulator in the US.
And surprise, surprise! The Companys share price went plummeting again on Tuesday, landing even lower at $31, leaving many investors scratching their heads as they saw their losses clock in. Nothing has changed in particular about the Company since its IPO, and the share price plunge does raise a cause for concern.
The devil may be sitting in the details about the Companys revenues though. The Company had issued a revised prospectus on May 9, admitting that the shifting of Facebook users to mobile platforms could have a negative impact. Facebooks apparent absence from mobile advertising explains why the concern has been raised, and poses risks of lower revenues and earnings.
The Morgan Stanley analyst had revised down his revenue forecasts for Facebook in light of the revised prospectus - from $5 billion to $4.85 billion for 2012 and from about $1.2 billion to $1.1 billion for 2QCY12.
Advertisements are the key revenue resource for this social networking giant, but they do not have a widespread presence. 60 percent of the advertisement revenue is generated via ads crammed on the right hand columns, which advertisers are beginning to doubt the utility of. Alternate sources of revenues have to be thought up fast.
One can help but doubt the sustainability of Facebooks business model given the uncertain revenue stream.
For such a young Company, the debut into the stock markets will be rather ominous. And conspiracy theories - substantiated by the rather odd and unusual change in revenue forecast during Facebooks IPO road - about the IPO being a ploy by a few early investors in the Company to cash in on the $38 price, does little to allay the average investors concerns.
Some analysts even claim that the stock price should be as low as about $10 per share! If these guys can be trusted any bit, or the market fundamentals relative to companies like Google considered, a further wipe out of market capitalisation shouldn be too surprising.