Leaning Down: Facebook's Stock At Its IPO Anniversary
Leaning Down: Facebook's Stock At Its IPO Anniversary
It has now been one year sinceFacebook CEO Mark Zuckerberg rang the bell to open trading on Nasdaq from Menlo Park, Calif., flanked by his cheering chief operating officer,Sheryl Sandberg, and a smiling Robert Greifeld, Nasdaq’s CEO, who was wearing a t-shirt. The events that followed that moment, from costly trading glitches and rich insider sales to a stock-price plunge that at one point reached 50%, made Facebook’s IPO infamous.
For a while, starting in the fall of 2012, it looked liked Zuckerberg & Co. were successfully engineering a comeback in the stock market, changing their tune while mounting a campaign to protect Facebook’s stock and showing a new found urgency to drive meaningful revenue from Facebook’s services. By the latter part of January Facebook’s shares were trading hands for more than $32, a 15% discount to the IPO price that almost seemed respectable. Sandberg was able to launch her book promotion with little attention or discussion of Facebook’s stock price getting in the way. The Securities & Exchange Commission approved Nasdaq’s plan to pay a relatively small $62 million to cover brokerages’ losses related to the IPO trading snafu. Peter Thiel, the early backer of Facebook who sold the majority of his stake in the stock market, was back to being treated like a contrarian rock star and telling Facebook war stories. Everybody involved in Facebook’s IPO has been trying to move on. The second coming of Facebook has already been proclaimed.
But as Facebook reaches the one-year anniversary of its IPO, recent trading in the stock looms large. Round numbers and annual performance mean something in the financial markets. Facebook’s shares have been weak in 2013 and steadily heading lower this month. Facebook’s stock has fallen by nearly 10% since May 2, and closed on Thursday at $26.13. Shares of Facebook are now worth 30% less than the $38 they sold for in the big IPO one year ago. The comeback narrative is fading.
Facebook, of course, is not the only big and symbolic Silicon Valley company that has disappointed investors in the last year. Apple AAPL +0.27%’s shares have sunk by 20% in the last year and are down 38% since their September highs. But the investing public at large has had the opportunity to benefit from Apple’s stunning rise in the last decade while only a few Silicon Valley-connected hedge fund, venture capital and Russian oligarch investors have been able to seriously profit from the Facebook phenomenon—with the exception being any brave traders who bought the stock at the end of last summer. All of this, meanwhile, has been happening amid a general stock market boom that has included some of Facebook’s chief rivals–like Google, which has seen its shares rise 45% in the last year.
Any reflection on the Facebook IPO should probably extend to Silicon Valley itself. Increasingly, it seems, the center of America’s technology innovation has not been living up to the hype. It’s not just the failure of the most high-profile tech IPOs of this era—Facebook, Zynga and Groupon—or the end of Apple’s incredible stock-market run. There is also the disappointment of the venture capital model, which has with very few exceptionsfailed to deliver adequate returns for many years now, especially given the liquidity premium associated with such investments. The big tech company that is now surging is located in South Korea. And the Internet economy has yet to produce the GDP gains in the U.S. associated with prior technological revolutions. Even the long-trumpeted productivity gains have failed to materialize. The economic benefits of whatever goes on in Silicon Valley, to a certain extent, have remained there. The life lessons offered by the titans of Silicon Valley, like Sandberg and Thiel, are generally well-received and lauded, but often feel like they are coming from some reality-distorted tech dreamworld, where people are paid not to go to college and women get to build nurseries next to their offices.
These issues might seem to go well beyond the gyrations of Facebook’s stock price, but that’s not how things were being portrayed in May 2012, when CNBC’s anchors were filling up air time by sayingFacebook’s IPO “opens a new chapter, an exciting chapter, for business in this country,” and that “March Zuckerberg has accomplished the substance of the American dream.” That dream has not worked out for those who bought Facebook stock at $38.
The company reported financials for the first quarter of 2013 that were decent enough, but did not blow investors away for a company that was valued at $100 billion one year ago. Revenue rose 38% year over year to $1.46 billion, but flat desktop ad revenue continued to suggest an increasingly tricky shift to mobile. Facebook is still trying to figure out how to best squeeze advertising dollars out of its services which, according to a research note put out by Boston-based brokerage firm Detwiler Fenton, can be seen in recent changes in Facebook’s news feed advertising efforts and the quiet suspension of Facebook’s mobile advertising network. Facebook has been moving its advertising efforts away from the right hand rail that small local advertisers have grown comfortable with in favor of unified news feed ads that can produce mobile ad revenue for Facebook. Underlying all of these kinds of tactical moves is Zuckerberg’s long-held concern that ad activity could alienate users. Recent new product and service announcements, like Graph Search, seem promising, but monetization will probably take lots of time. Some new initiatives, like Facebook Home, have been deemed a flop.
The Facebook bulls acknowledge the current marketplace obstacles, but characterize them as short-term in nature and predict they will eventually be surmounted by the world’s biggest social networking company, which has over 1 billion users and plenty of financial firepower. That was not, however, the story that was being sold one year ago.
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