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End of IPO 'Quiet Period' Reveals Facebook's Vulnerable Status

28 June 2012 - News - Editor

As the Facebook IPO 'quiet period' ended, only eight of the seventeen brokerages to issue reports recommended buying Facebook shares, with eight brokerages giving neutral ratings, and one issuing a 'sell' rating. Goldman Sachs, Morgan Stanley and JP Morgan were among those recommending that investors should buy Facebook shares, but with shares closing at US$ 32.23 on Nasdaq, compared with their IPO price of USS$ 38, it's unlikely that investors will be clamoring to buy. Reasons for caution, as noted by the reports, include Facebook's uncertain business model, doubts about the company's strength, margin pressures and the effect the transition to mobile technology will have on the advertising revenue of the social media company.

The much anticipated Facebook IPO, which set a record as the first US company to debut with a market value exceeding US$100 billion, was marred by a series of technical problems at the Nasdaq exchange. The company's decision to up the size of the IPO by 25 percent just days before the IPO, along with concerns about decreasing revenue, among other things, resulted in the stock dropping to US$25.52 before picking up again, but never reaching the levels of the IPO price.

There is no doubt that Facebook is one of the world wide web's most visited destinations, but advertising revenue growth has slowed, and while in 2011 the company was more than doubling its revenue each quarter, the first quarter of 2012 reported a growth of only 45 percent. The announcement by General Motors that it would stop advertising on Facebook added to the concerns regarding advertising revenue.

It appears that Facebook is not resting on its laurels though, and recent weeks has seen the social network unveiling a number of updates related to their advertising services. Marketers will be able to target ads to Facebook's mobile users, as well as channeling ads to all users based on the websites they have visited. Analysts at Bank of America Merrill Lynch analysts have noted that Facebook is in the midst of a transition to mobile usage, and they are exercising caution with regard to revenue trends, until they see evidence of mobile ad revenue models driving the top line. Certainly, the shift to mobile has been more rapid than many anticipated and Facebook is pulling out all the stops to meet the needs of both users and advertisers. With the second quarter of 2012 coming to an end, investors will be eager to review Facebook's results, and decide whether or not they 'like' what they see.

 


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