Wednesday, 1 August 2012

Time to panic on Facebook?

The worst may be yet to come. On Aug. 16, 91 days after the IPO, insiders, such as company officers, directors and employees, can sell 268 million shares of stock. Between 91 and 181 days after the IPO, insiders can sell an additional 137 million shares. Given the stock's plunge so far, investors are braced for an avalanche of available shares from insider sales, putting more downward pressure on the stock price. It's a stunning reversal of fortune in a short period of time. Facebook is now the second-worst performer of all IPOs in the U.S. so far this year, says IPOScoop.com.

Around the time of the IPO, individual and institutional investors alike were clamoring for shares of the multibillion-dollar IPO. Facebook shares' precipitous 43% price drop is slightly better than the 51% decline by Renewable Energy Group, which went public in January.

The fallout from Facebook's dismal performance isn't confined to the billions of dollars erased from CEO Mark Zuckerberg's personal fortune. Analysts attributed at least part of Tuesday's selloff to the announcement of Facebook-related losses by a large Swiss bank. UBS Tuesday reported a disappointing 58% decline in quarterly profits, in part, to a 349 million franc loss ($357 million U.S.) from its handling of Facebook stock at the IPO launch. The bank says it lost money due to technical problems handling orders of Facebook stock for clients.

"Facebook doesn't have any friends on Wall Street or Silicon Valley," says Gaskins. "That's a problem. Their brand has been damaged a lot."

Facebook shares hit new low, 43% below IPO price

Track Facebook stock history

It may be a bit early to write off Facebook, but you might notice a pattern with social media.  From Wikipedia, to MySpace, to Second Life, social media has found it very hard to convert hype and new users in to long term users and profits.

Some sites, like Wikipedia, have clearly transformed how information is shared around the world, but if Wikipedia was a business trying to make money it would be in very serious trouble.  Some thinkers have pointed out that the values of social media like sharing, user empowered content creation, and free mass distribution are not very useful for collecting profits.

Facebook tried to counter this by collecting data that would be of value to market firms, thus turning our sharing and collaboration in to insights about us.  Given the high level of noise in any Social Media outlet there is good reason to question if this will ever take place. 

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