By Raaj Datta (NVONews.Com)
After a hitting a record low on Tuesday at $17.73, Facebook stock price rose 4.8 percent to $18.58 on Wednesday. This is the first time that Facebook has seen a reverse trend after the IPO launch at $38 that saw a drop almost every day.
The sudden reversal is surprising because Tuesday’s lowdown was caused due to a cut in the price forecast by Morgan Stanley. The lead underwriter was obviously concerned with the way Facebook has handled ads in the mobile devices.
Wednesday’s trend brings fresh hopes for investors who were probably thinking about jumping the ship due to a seemingly bleak future of Facebook’s mobile revenue model. Currently, the social networking giant targets desktop users with almost 30 times more advertisements than the mobile segment.
Brewing trouble for Facebook
The sudden reversal of the share price might be momentary because at 32 percent, the revenue growth doesn’t look too great. If something was there to cushion the dip, things could have been better. Facebook’s expenses have increased by almost four times as Chief Zuckerberg plans on an expansive office and more data centres.
Search giant Google and online megastores eBay and Amazon have the luxury of playing around with expansions both horizontal and vertical. But, here’s the thing – unlike Google, eBay, and Amazon, Facebook offers users a different kind of value that is bit difficult to quantify in the real world. At the same time, investors are hoping for returns from the advertisements that get displayed on Facebook.
There’s another announcement from Facebook that doesn’t make life easier for the shareholders. Facebook is planning to ease the restrictions on its employees and allowing them to sell their shares four days after the third quarter results are announced. This could be around October 29, with an extra 234 million shares up for trade.
What’s in the mind of Zuckerberg?
This is the biggest question perhaps – what’s the hoodie-clad CEO thinking? He goes on a honeymoon when his IPO hits the market, and yet again, he spends lavishly on infrastructure when the shares are on a downward spiral. Those who thought he was the next Steve Jobs in the making might have miscalculated, perhaps a bit. Yet, he can’t be written off just yet.
The 28-year old CEO has made it clear that he won’t sell his shares for a year. Zuckerberg’s stand could actually get some value for Facebook given the fact that he owns around 65 percent of the shares.
The curve in share price – Should shareholders take a cue?
It won’t exactly come as a surprise if Facebook shares again go down the spiral. Right now, online advertisement is going through a rough patch. If Facebook fails to implement a sustainable mobile advertising strategy quickly, the shares could tumble to the $10-$12 bracket.
We find it difficult to conclude whether it would be wise to dispose off or hold the shares for an extended period of time and wait for a steady positive trend. But, given the slight positivity in the trend, it would be better to hold the breath a little longer because Facebook is not done yet.