It’s not surprising that Facebook shares dived – I can give you a number of reasons:
- Facebook does not control much of a revenue stream – it controls a conduit which is proving hard to make money from.
- Clicks and impressions simply are not converting into sales
- Investors wanted out at the top – that is why the company was listed
- The initial listing is the best opportunity a company will get to offload stock because of the liquidity floating in the market.
At some point the company will support the stock with a buy-back. It will do that in order to support placements of more stock at comparative prices. Facebook is a high-risk proposition. It is still very easy for competitors to challenge its market position.
People can look at the collapse as a testament to market weakness;
but I see it as a strategic decision by long-term stakeholders to exit a risky
stock. That rationalisation however will serve as a useful basis for
manipulating a recovery in the stock price. Facebook is trading at an EPS of
74x earnings compared to 18x for Google.[i]
Facebook of course has the less well-proven revenue model, but that is just
part of the risk. The way we interact with the internet is open to big changes,
and there is no reason to think that Facebook can buy out ever fad that
threatens it, or even pick the right ones. It is going to struggle to prove
that it has the capacity to raise earnings 40-500% in the next few years. There
isn’t enough stock in the market to see a huge collapse, but expect such a move
with the next offloading of stock.
References
Asian property markets outperforming Japan Foreclosed Guide Philippines Property Guide
Profit from mining with Global Mining Investing eBook Global Mining Investing Community.
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