Outside the Beltway

Facebook’s Share Price Continues To Tumble As Reality Sets In

Facebook's stock has lost nearly 50% of its value since the company went public, and the plunge probably isn't over.

Doug Mataconis · Friday, August 17, 2012 · 13 comments

The heady days of the run-up to the Facebook I.P.O. didn’t last very long. Indeed, within hours after the stock first went public, it fell below it’s initial offering price and never went back. In the weeks since then, it’s been on a stead downward path to the lower $20/share range, but yesterday it finally crossed the point where a share of Facebook is now worth nearly 50% less than it was on the day the company went public:

Facebook, Inc’s stock price plumbed a new low Thursday as early investors were freed to sell some of their stakes, leaving the once-prized stock down nearly 50% from its debut and forcing executives of the young Internet giant to pump up morale.

Facebook Chief Executive Mark Zuckerberg is no longer brushing off concern about his company’s sinking stock price, acknowledging to employees for the first time that the selloff could hurt them.

Mr. Zuckerberg has long exhorted employees not to pay attention to the stock price, instead pushing them to focus on developing the social network. But in a companywide meeting earlier this month, he conceded that it may be “painful” to watch as investors continue to retreat from Facebook’s stock, according to people familiar with the meeting.

The meeting was part of a new effort over recent weeks to buck up morale.

Mr. Zuckerberg’s turnabout may have steeled employees ahead of Thursday, when some early Facebook investors—but not employees—were able to cash out for the first time since the company’s initial public offering in May.

Facebook shares hit a new low on Thursday, falling 6.3% to $19.87 as more than 271 million shares—or nearly 13% of those outstanding—became eligible for sale.

Mr. Zuckerberg’s turnabout may have steeled employees ahead of Thursday, when some early Facebook investors—but not employees—were able to cash out for the first time since the company’s initial public offering in May.

Facebook shares hit a new low on Thursday, falling 6.3% to $19.87 as more than 271 million shares—or nearly 13% of those outstanding—became eligible for sale.

Rules that restricted investors from selling their stakes immediately after Facebook’s IPO expired only for those who sold stock in the offering. The select group includes venture-capital firms such as Accel Partners and Greylock Partners and Wall Street firms like Goldman Sachs Group Inc. and Tiger Global Management.

Employees who own Facebook shares are only able to watch at this point. Lockup expirations in October, November and December will allow Mr. Zuckerberg and other employees to sell more than 1.4 billion shares. The biggest lockup expiration, freeing more than one billion shares, is set for Nov. 14. The last lockup expires next May.

For many employees, however, selling shares later this year may not be a palatable option. Facebook’s stock has so far fallen about 48% since the IPO, pushing its market capitalization down to about $42.6 billion.

The drop-off in stock price has led to a revival of a discussion that some were having before the company went public. Namely, whether or not he is the right person to lead Facebook now that it is a publicly traded company:

The deepening slide in  Facebook Inc.’s stock is fueling talk once considered implausible on Wall Street and in Silicon Valley.

Should Mark Zuckerberg, the social media visionary but neophyte corporate manager, step aside as CEO to let a more seasoned executive run the multibillion-dollar company?

In that scenario, Zuckerberg would remain as the creative force propelling Facebook’s technological innovation. But the 28-year-old would cede the CEO title to someone better suited to overseeing operations and building rapport with finicky investors — mundane but essential duties for which Zuckerberg has shown little appetite or aptitude.

“There is a growing sense that Mark Zuckerberg, talented though he may be, is in over his hoodie as CEO of a multibillion-dollar public company,” said Sam Hamadeh, head of research firm PrivCo. “While in many cases a company founder can, and does, grow into the job, things are happening so quickly that there is precious little time here for Zuckerberg to do that.”

This isn’t an unfair point, but the truth of the matter is that Facebook’s problems going forward may not have anything to do who heads the company. Their chief sources of revenue is online advertising, to the tune of nearly $900 million is the must recent reporting quarter. That number is actually is actually surprising to me, because I almost never notice the ads on Facebook, must less click on any of them, when I’m on the site. More importantly, though, a growing number of people access their Facebook accounts via mobile devices and, so far, the company has not been able to come up with a viable method for monetizing the mobile experience. It’s not going to be an easy task, largely because the screen space on an iPhone or Android based phone simply isn’t big enough to put ads anywhere without making the user experience completely unpalatable. As more and more people shift their “Facebook experience” to mobile devices, the ad revenue is likely to dry up and the prospects for Facebook living up to the dreams of those who bought into the I.P.O. become more unlikely.

It strikes me that this is something that won’t change even if Zuckerberg is removed from his current position. Indeed, given that he is the man who has been the site’s chief designer from the beginning, I can’t think of anyone who could come up with a solution to this problem other than him, assuming there is one. Nonetheless, if the stock price continues to fall, which it is likely to as more and more shares become available to be traded over the next several months, shareholders are going to start getting nervous and putting pressure on the Board of Directors. You will recall that, after Apple hit a brick wall in the 1980s, the company’s board forced Steve Jobs out and brought in John Scully, who had previously run Pepsi, because of similar concerns. Sculley, of course, didn’t exactly shine at Apple and Jobs came back, but the forces that pushed Jobs out in 1983 are the same forces that may force Zuckerberg to step aside as CEO in favor of a more experienced business person.