Sunday, September 2, 2012

Farcebook Crumbles Before Our Very Eyes

Facebook share prices have collapsed. Instead of my once again pointing out all the things wrong with Facebook and its business model. Today I found 4 artisles that seem to capture the Zeigeist of the moment. I will allow you to read the articles and make a short commentary after each one...

First up, from The Guardian and a report on how Groupon, er, excuse me, Facebook insiders have been dumping their shares and the trend is expected to continue. The article is entitled, "Facebook shares sink even lower and analysts fear more sell-offs": 

Facebook's shares hit new lows Friday as analysts worried the social network's insiders may be preparing to sell yet more stock.

The company's share price reached a low of $18.03 on Friday before ending at $18.08, down 5.28% for the day. Facebook's shares are now worth less than half the $38 price they were sold for in May.
Facebook's shares fell 6.3% after the expiration of its first lockup agreement in mid-August freed up some 271m shares for sale. Legendary Silicon Valley investor Peter Thiel, the first big outside investor in Facebook and a company director, used that opportunity to sell more than 20m shares, most at $20 a share. Co-founder Dustin Moskovitz has shed 1.35m shares at prices ranging from $18.79 to $20.08, adding $26.2m to his fortune.

Post was more positive about the company's long-term prospects from new advertising formats but wrote "recent selling activity on the August lockup suggests to us the risk of future selling pressure".

Facebook's next lockup expiration comes on 15 October, when another 249m shares will be freed up. The largest expiration comes on 14 November, when co-founder and largest shareholder Mark Zuckerbergand others will be free to sell 1.32bn shares. More shares will also be released in December and in May next year.

On the day of its IPO Facebook was briefly valued at $104bn, more than the market value of Goldman Sachs and Nike added together. On Friday Facebook was valued at $38.69bn, less than Nike's $44.19bn.

The once mighty Facebook which just 4 months ago was valued at over $100 billion dollars is now valued at less than Nike? Well, of course it is! Nike at least sells something tangible!

The next article talks about how Facebook is trying to fix it's profit model by converting to mobile platform. Too bad that no company has been able to make mobile advertising profitable yet and I seriously question how a company ran by people who have lost 50% of their value in just 4 months could be the first people to figure out how to monitize mobile platform advertising. From Wall Street Cheat Sheet, "Here's why even the Facebook Bulls are running scared":

Facebook, which had seen incredibly high interest from investors before it went public in May, has come crashing down in the months after. Its share price has fallen to about half of its level in May, when it debuted at $38. Most of Facebook’s revenue comes from advertising on the site and the company has been under pressure to prove to its new investors that its ad model can continue delivering in the long term. It is also working hard and rapidly on improving its mobile offerings as more and more users of the social network move to that platform over from PCs.

Facebook Inc (NASDAQ:FB) fell to new all-time lows following BMO Capital analyst Daniel Salmon’s statement that many advertisers seem to be lowering the amount of money they have been spending on the website. Two out of three advertisers that were contacted by Salmon revealed negative information regarding the stock, the analyst wrote. (emphasis mine) 

Salmon, who cut his price target on Facebook shares to $15 from $25, predicted that Facebook could face difficulty in raising its revenue by over 4 percent during the current quarter. As a result, the stock will probably retreat after the company reports his Q3 results, stated the analyst, and he reiterated an Underperform rating on the shares. Facebook dropped 75c, or 3.92 percent, to $18.34 during early trading. The shares closed at $18.06, down $1.03 or 5.4% on the day. They have traded in a 52-week range of $18.75 to $45.00.

Like I said, no one has ever been able to find a way to make mobile platform advertising profitable. To think the management of Facebook, who has found a way to lose more than 50% of their company value in just 4 months could do so is dreaming.

Finally, the article that made me chuckle at its absurdity. The barn is on fire and all the animals have run away and what is Facebook doing? Why they are repainting the picket fence! Hilarious!

Facebook is ramping up efforts to get rid of “Likes” that aren’t from people genuinely interested in giving a virtual thumbs up to pages at the world’s leading social network.

“We have recently increased our automated efforts to remove Likes on pages that may have been gained by means that violate our Facebook terms” of service, the Facebook security team said in a blog post.

“These newly improved automated efforts will remove those Likes gained by malware, compromised accounts, deceived users or purchased bulk Likes.”

Facebook has long given members the ability to endorse pages at the social network by clicking on “Like” icons.

High numbers of Likes can give “fan count” status to pages, particularly those dedicated to brands.

“A Like that doesn’t come from someone truly interested in connecting with a page benefits no one,” Facebook said.

“This improvement will allow pages to produce ever more relevant and interesting content, and brands will see an increase in the true engagement around their content.”

Chuckle! On a webpage where millions of accounts are fraudulent and its been proven that people make accounts for their cats and dogs and people in some countries are paid to click "Like" (and click 3,000 ~ 4,000 a day); on a service that was designed for people to waste time showing others what they had for lunch or photos of their kids; that Facebook would spend time (and promote) the fact that they are spending money on cracking down on lies (on a service full of lies) seems to be the height of curiousity to me.

Of course, now you know why many people are calling it, "Farcebook."

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