Facebook continues to struggle in maintaining its shares over $29, following a week of sobering up for the world’s largest social networking company.
The Facebook initial public offering (IPO) that drew the attention of investors spiraled downwards into a travesty of reality after NASDAQ, the US stock exchange that won the listing of Facebook, encountered problems and suffered delays, which forced the company’s underwriter, Morgan Stanley, to shore up the $38 price of shares. As soon as the investment bank threw in the towel, Facebook shares have seen a nearly continuous drop to below $29, more than $30 billion off the social network’s blown up initial valuation.
To top all of the exacerbating news for Facebook, the company, along with Goldman Sachs and Morgan Stanley, now face a lawsuit from investors after a recent alteration to Facebook’s profit projections only went to a couple of prominent investors.
Facebook investors, who still hang to hopes that the company’s sufferings are tethered to the bigger market, may find it shocking that the old-fashioned social network for professionals, LinkedIn, has performed quite well as opposed to the former, with shares pushing gently upwards at a time when Facebook’s share price fell down by more than 25 percent.
Apart from LinkedIn, Google’s own social networking service, Google+, despite a relatively smaller user base, only fell two percent during the same span since Facebook launched its IPO.
The drop in share price of Facebook could mostly be accounted for the initial pricing of the stock, as the market is dubious over the company’s ability to generate cash in the future. Apart from that, insatiable desire for wealth among banking institutions and early private investors, which exclude Facebook management who are not entitled to sell their shares for several months as part of stock exchange listing rules, helped build up the hype for the firm to be valued at almost $100 billion during its IPO, a ludicrous amount to rational minds.
As might be expected, the main problem for Facebook is how it will generate money without the need for users to realize that it needs to keep personal data from users.
In hindsight, if Morgan Stanley and other investment banks had estimated within reason Facebook’s value, its share price would have sprung up, with the potential of building momentum and riding its growth, rather than make Facebook look like a company that has miserable prospects.
If Facebook’s share price keeps up with its current shape, expect to see it fall down further.