Facebook stumbles, but still has time to prove itself
In its second day of trading on the Nasdaq, Facebook?s closed at 10 percent below its initial public offering, pointing to investors declining confidence in the social media giant?s current strategies for driving revenue.
The drop in share price means Facebook is now valued significantly below the $104 billion value it had when the shares debuted at $38. A growing thorn in Facebook?s side is how it plans to monetize mobile as use continues to migrate away from desktop.
?The drop in the second day of trading isn?t that significant,? said Eric Johnson, founder and president of Ignited, El Segundo, CA.
?The stock had been the most hyped launch in recent memory, and was at an extremely high multiple. Invariably, it?ll go up and down,? he said.
?The question is how Facebook will expand its ad offerings, and how successfully they will deliver what advertisers want.?
Finding success in mobile
Over the past few months, Facebook has been bolstering its mobile strategy with a series of acquisitions, including the mobile apps Instagram, Lightbox as well as geo-location service Gowalla.
The company also launched an app store.
Most recently, over the weekend it acquired mobile gift-card app Karma. The app collects information from users? Facebook accounts such as birthdays, engagements, etc. and enables users to send a card as well as products from various retailers. The app also suggests gift items.
Karma will reportedly continue to operate even after the acquisition.
?Mobile has finally become a meaningful advertising medium, and Facebook needs to be successful there,? Mr. Johnson said. ?More and more people are accessing the Web more frequently from mobile devices than fixed PCs.
?It makes sense for them to be locking up complimentary platforms,? he said. ?They are using their currency and value to make strategic acquisitions.?
It is likely Facebook?s stock may continue to be on a bit of a roller coaster ride, in part because there were a few hiccups in how the IPO was handled by the Nasdaq.
However, the price could start to stabilize once Facebook releases its first financial earnings report as a public company.
?You won?t see the stock reacting to the normal market influences until the extraneous factors have worked their way through the belly of the python, like 1) Nasdaq?s below par performance of their trading systems 2) the day traders and 3) the company reports their first quarter of earnings as a public company,? said Palo Alto, CA-based John Sternfield, a managing director at PetskyPrunier.
With approximately half of its users accessing Facebook from their mobile devices, Facebook knows it needs to be able to monetize mobile.
Currently, most of the social network?s revenues come from online advertising. However, as users increasingly move to mobile that revenue is expected to decline.
The recent fluctuations could be a sign that, for now at least, investors are not seeing the upside potential in Facebook?s recent moves to build its mobile offerings. However, there is still time for Facebook to make these work.
The company also continues to build out its offerings for marketers on desktop as well.
?The mobile strategy is just one element of the bigger story,? Ignited?s Mr. Johnson said.
?Facebook just announced some new ways to advertise on their platform,? he said. ?Assuming those new ad units work out, they?ll end up on mobile as well.
?The most interesting announcement is how they can monetize the data from Facebook users to target ads outside of their platform. Marketers will find this very appealing, since Facebook has tremendous insight about its users and their behavior.?