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Facebook's 'underwhelming' Wall Street debut

Publish date: 23 May 2012
Issue Number: 1435
Diary: Legalbrief eLaw & Management
Category: eCommerce

It was one of the closest watched listings in history but Facebook has disappointed.

Legalbrief reports that Mark Zuckerberg's fortune dropped $2.1bn as shares of the world's largest social-networking company fell below the company's offer price in its second day of trading. The shares sank 11% to $34.03 at the close in New York. The company raised $16bn in an initial public offering, selling 421.2m shares for $38 each last Thursday. It was the biggest technology IPO in history. By Monday afternoon, Facebook's stock was at $34.26, down 10.4% from Friday's closing price of $38.23. According to a report on the IoL site, the company lost nearly $10bn of its market value, and is now worth around $96bn - that's about $2bn below Amazon.com. 'There must have been some sober second thoughts about this,' said Brian Wieser, an analyst at Pivotal Research Group who was first to come out with a 'Sell' rating on Facebook's stock on Friday, according to the report. It's not that he thinks the world's largest online social network is a bad investment. But at $38 a share, it's just too expensive considering the risks associated with Facebook's brief history and unproven advertising model, he says. According to the report, his fair price, or 'target price', is $30. Initial public offerings are a delicate game of supply and demand. The investment banks orchestrating the transaction, the deal's underwriters, work with the company to decide how much stock to sell and at what price. The Sowetan notes that Facebook's 'underwhelming' debut on Wall Street increases the pressure on it to deliver stellar growth - a novel situation for Zuckerberg, who has been clear he is more interested in building products than making money. According to the report, the poor stock market performance has intensified the scrutiny of Facebook's business, raising the bar for the company to regain Wall Street's confidence, say some investors and analysts. 'What's most important now to investors is top line growth,' Michael Binger, a senior portfolio manager at Gradient Investments, is quoted in the report as saying. 'If they're interested in seeing their stock work, they need to have a good quarter,' he said, the report notes. It states that Facebook generated $3.7bn in revenue in 2011, with net income of $1bn - a sharp contrast to some of the money-losing Web companies such as Groupon Inc and Pandora Media Inc that have recently gone public. Full report on the IoL site Full Sowetan report

Facebook's shares fell again yesterday as questions mounted over the company's long-term prospects and the top US securities regulator called for a review of the problems surrounding its IPO. The Edmonton Journal reports that the comments urging a review, by Securities and Exchange Commission chair Mary Schapiro, added pressure on the company, its underwriters and the Nasdaq, all of which have taken blame for the stock's troubled opening. After Monday's 11% plunge, Facebook shares were down 8.9% or $3.03, to close at $31 yesterday. According to the report, investors were still shaking their heads over the botched opening trading of Facebook when lead underwriter Morgan Stanley cut its revenue forecasts for Facebook in the days before the offering. A report on the kansascity.com site notes the latest price values the company at about $91bn. Google, on the other hand, is worth nearly $200bn, according to the report. Full Edmonton Journal report Full report on the kansascity.com site

BusinessWeek reports that Facebook got another black eye last week when General Motors announced it would cease advertising on the platform, yanking $10m in annual ad spending away from Zuckerberg just days before the company's IPO. The move caused some to wonder if Facebook's business model is flawed, according to the report which notes that, after all, the social network made 85% of its $3.7bn in revenue last year from those little ad boxes on the side. The report states that if marketers stop buying them, Facebook's stock price could get hit even harder and further than its 11% dip on Monday. Full BusinessWeek report

The listing has once again raised security concerns about Facebook - and other social media platforms. And a report on the Road Runner site notes that Facebook knows that there is a problem. Earlier this year, it began working with the US Attorney-General's office to try to combat linkjacking, a new form of account hacking and spam that is more or less unique to Facebook. Through various kinds of identity theft, linkjacking spammers send messages containing false ads or even viruses to the victims, pretending to be a Facebook friend, according to the report. It says like linkjacking, malware represents yet another growing threat for Facebook users, Dr Kent Seamons, assistant professor in the Computer Science Department at Brigham Young University, told 24/7 Wall St. 'Hackers get malware on your machine and get tens if not hundreds of thousands of these machines under their control and then they rent them out to spammers and others,' Seamons explains. Renting Facebook accounts to spammers is one of the many ways that thieves monetise the personal information they steal. These rented accounts can then be used to advertise products illicitly or to request money from unsuspecting friends. Ultimately, all social media sites make it easier for criminals to deceive their victims. According to a study published in Communications of the ACM, a journal for computing professionals, the percentage of students that responded to a phishing e-mail increased from 16% to 72% when the e-mail included relevant social information about the target. For example, notes the report, scams that make it appear that a message comes from a friend of the target make it more likely that the target will respond. Full report on the Road Runner site