20 Jul 2012 Friday
Facebook's value slides $10 billion; outlook unclear
Investors wiped $10 billion off the value of Facebook Inc on Friday,
taking the recently listed shares to a new low, after the social network
offered no forecast and analysts said mobile investments would put
future earnings under pressure.
The 17 percent slide in the
shares took Facebook's market capitalization to $48 billion -- half its
IPO launch value of $100 billion in May. The latest slide
cost CEO Mark Zuckerberg, the 28-year-old who founded Facebook in his
Harvard dorm room, around $2.3 billion, based on his shareholding.
social network just beat revenue expectations on Thursday in its first
quarterly earnings but the company failed to reassure investors about
its future prospects. "Facebook has established itself as an
Internet utility but it might take a while for Facebook to gain Wall
Street love," Citi Investment Research analysts said in a note.
worried about how the social network would make money from mobile
advertising had hoped that the company would signal that revenue growth
was picking up. The shares have shed around 40 percent of their value since the company's ill-starred debut at $38 on May 18. They
fell to a record low $22.28 in morning trading on Friday before
recovering a little to $23.03. It was far and away the most heavily
traded stock, with 52 million changing hands.
At least four
brokerages, including Barclays Capital, cut their price targets on
Facebook stock, although most suggested it was worth much more than
current trading levels. Created just eight years ago,
Facebook continues to grow -- hitting 955 million active users a month
at the end of June -- but its shares have slid since its May IPO as
investors questioned a valuation of more than 50 times earnings.
Morgan Securities analysts said the stock could also be under pressure
because some early investors will be able to sell shares from August 19,
potentially flooding the market with stock. But most focus
was on the company's mobile strategy, with big questions about whether
it can sustain growth as users increasingly access Facebook on mobiles,
where it has found it hard to squeeze in advertisements.
Facebook only recently began to offer limited advertising on its mobile platform, so far generating little revenue. Facebook
is investing heavily in improving mobile apps and building a platform
on top of which new apps can be built, but so far that has increased
capital expenditure but not delivered big gains in revenue.
company, which competes with established Web companies such as Google
Inc and Yahoo Inc, said capital spending more than tripled to $413
million in the second quarter. "Facebook is in the early
stages of an important transition in its (mobile) advertising business
that should drive accelerating growth and margin expansion over time,"
J.P. Morgan Securities analysts said.
The company ended the
quarter with 543 million active monthly mobile users, up two-thirds from
a year earlier but advertising views lagged user growth. Mobile access
now accounts for 57 percent of total users. The bright spot
was that sponsored stories brought in much better rates than traditional
ads, allowing Facebook to increase prices by 9 percent, Morgan Stanley
analysts said. A sponsored story is an advertisement that
appears on a user's Facebook page and tells the user that a friend
"likes" the advertiser. Despite Facebook's slide from grace, many analysts still see the stock bouncing back.
analysts rate the stock a "strong buy," 11 rate it "buy,", 17 rate it a
"hold", while one each rate it a "sell" and "strong sell", according to
Thomson Reuters' StarMine. The mean price target on the stock is
$38.00, suggesting a 71 percent upside to Friday's low of $22.28.
woes add to pressure at Zynga Inc, which gets nearly all of its revenue
from the social platform's users. Fading fortunes of hit games such as
"FarmVille" forced the company on Wednesday to slash its outlook.