What impact will Facebook?s rocky IPO have on mobile investment?
Facebook?s IPO appears to be turning into a debacle, which could have implications for other companies looking to drum up significant investments based on their mobile strategies.
While Facebook?s stock debuted at $38 on Friday, it has been trading as much as 18 percent lower in the days following the IPO. Adding to the social network?s problems is a new lawsuit claiming some investors were misled as to just how much Facebook?s revenues are declining as mobile use grows.
?Any lawsuit filed regarding a public offering is sour grapes from the investors who expected a quick buck,? said Palo Alto, CA-based John Sternfield, a managing director at PetskyPrunier. ?Long term investors who believe in Facebook are inevitably viewing this as a buying opportunity.
?If anything, the Facebook IPO was probably a victim of little scrutiny paid by many investors who knew of the name and the company but paid little attention to the value of the stock,? he said.
Mobile social shares tumble
Problems in the Nasdaq system may have further complicated Facebook?s IPO. Nasdaq was reportedly unable to keep up with the demand for Facebook shares and, as a result, investors did not know for hours if their trades had gone through.
While it is still unclear how significant the IPO-related issues will be in the long-term for Facebook, the company?s experience suggests investors may be growing more cautious about pouring money into companies with a mobile play that do not have a tested monetization strategy in place first.
Investment levels in companies with strong mobile plays have been running high since at least last summer. The pricing on shares for Groupon and LinkedIn were up significantly in on the first day of trading for both companies.
However, shares for several mobile social companies, including Zynga, Yelp, Groupon and LinkedIn, all dropped significantly on Friday following Facebook?s IPO.
The class-action suit filed yesterday on behalf of shareholders is only further complicating Facebook?s issues and making investments in mobile social companies seem risky.
The class-action lawsuit was filed against Facebook, Morgan Stanley & Co. and several other banks involved with the IPO. At issue is if the banks inappropriately had access to information about declining revenue projections for Facebook that other potential investors did not.
While Facebook had previously warned investors that its revenue is declining as users increasingly migrate from desktop use to accessing the social network through their mobile devices, the complaint alleges the companies failed to disclose how severe the decline is. The suit claims this information was shared with some investors but not all.
Regulators are also reportedly taking a look at the issue.
Easy installation for apps
In attempt to address the need to monetize mobile, Facebook has been aggressively investing in its mobile strategy over the past few months, buying several different mobile apps, including Instagram and Karma. Additionally, it has introduced mobile advertising solutions and announced the App Center, where users can find and download social media apps.
In the latest move to beef up its mobile strategy, Facebook said this week that it will introduce a new tool in the App Center that will make it easy for users to install apps on their mobile devices. The Send to Mobile tool will be featured on all apps available for download and will enable those browsing the App Center on their desktop computers to transmit a notification to their mobile device.
When clicked on, this notification will redirect a user?s mobile browser to Apple?s App Store or Google Play to download the app.
As mobile penetration grows in leaps and bounds, it is clear that the sector will continue to attract investors.
However, what the Facebook experience has shown is that investors are increasingly aware of the challenges that monetizing mobile presents and that anyone looking for an infusion of cash had better get its duck in a row first and prove out how it will generate revenue via mobile.
?The ability to monetize a mobile platform and receive revenues from it on an ongoing basis - as opposed to selling it to a Facebook or Google as a defensive or offensive strategy a la Instagram - is still restricted by the limited real estate that the mobile platform allows and the willingness of the consumer to view ads on their device,? Mr. Sternfield said.