Where does Facebook go after the face plant?

It depends on a couple of trends, only one of which FB can control. Meanwhile, shares are still falling.

By InvestorPlace May 22, 2012 11:44AM

By Kyle Woodley

At this point, teeing off on Facebook (FB) has become the town carousel -- everyone gets a turn.

Facebook fell down the stairs again to open Tuesday trading, this time stumbling by about 7% before collecting itself a bit. At $33 per share as of this writing, FB is sitting about 13% down from its original $38 pricing.

Which would be a relief to some investors, considering how many people bought in at around $42 when Facebook started trading. For those unfortunate investors, losses currently total around 22%, if those buyers haven't jumped ship by now.

So how’d we get here?

For starters, the Nasdaq shook investors Friday with its IPO face plant, letting technical glitches delay one of the biggest deals in history for half an hour and putting numerous trades essentially in limbo while investors stared at computer screens asking, "So where are my shares?"

Then, the second Facebook went live, hype hit a cold wall of reality erected upon FB's own business and the social sector in general.

On Monday, Facebook was further shelled after revelations that Morgan Stanley (MS) was acting as a crutch for FB shares during the Friday dive.

And this morning, Reuters reported that Morgan Stanley consumer Internet analyst Scott Devitt actually was going to trim the outlook for Facebook's revenue days before the IPO -- an action spurred from an amended filing from Facebook concerning the company's worries about mobile advertising.

Folks, this is the Medusa of IPOs.

And the funny thing is, while I don't think anyone tossing out opinions on Thursday -- well, save at least a couple of people behind the scenes at Morgan Stanley, apparently -- could have seen the Facebook IPO playing out as it has, many people still saw it playing out poorly.

Beating the drum here at InvestorPlace was our IPO expert Tom Taulli. His full analysis of the Facebook IPO can be read here, but I’ll summarize: Facebook is a strong business with a great brand. However, the IPO is overhyped, the company has monetization problems (mostly related to mobile) that haven't gotten as much attention as they should, and FB is going to have to let off some froth before it's worth getting into -- as in a couple months' worth.

Taulli couldn't have been more right. Facebook, like a good pour of Sam Adams, had a frothy head you could float a bottle cap on. And clearly monetization of mobile is an issue, as Devitt has come to realize.

So where does Facebook go from here?

Well, if it had been trading for, say, more than three days, it might be worth consulting the charts, but that's out.

With a price-to-earnings ratio still at about 100, it'd be easy to predict more FB losses on its high valuation alone, but (1) Amazon (AMZN, P/E ~180) is proof that, occasionally, asinine valuations can persist for years and (2) the social sector isn't playing by our rules.

Zillow (Z)? P/E ~ 300. LinkedIn (LNKD)? P/E ~ 650. Trying to compare social valuations to "traditional" ratios is like comparing the Celtics-76ers score to a Nationals-Phillies result.

So the simple answer for the very short term, then, is "wherever emotion will take it." Losses Monday and Tuesday were pretty reactionary in nature, but in fairness, they were reactions to pretty troubling news. Facebook's path to recovery midday Tuesday was promising, though. Frankly, I'm curious to see how Facebook trades on a day when it isn't the lead headline across the Internet, but who knows when that will be.

Beyond the next couple of days, two things will continue to weigh on Facebook: the growing awareness of its difficulty in monetizing mobile, and current market trends.

Regarding the first, Facebook -- and the rest of the world -- can't seem to figure out how to get money out of ads on mobile devices. Heck, it's hard just to fit ads on mobile devices.

And as for the second, as summer nears, "Sell in May and go away" has seemingly taken hold, and investors are piling into income to ride out the next few months. Considering Facebook hasn't yet declared a dividend that I'm aware of, that probably doesn't help FB’s case.

For now, if you're not in Facebook, just wait. I know Warren Buffett would say "Be greedy when others are fearful," but he doesn"t have an adage for when people are downright terrified.

Kyle Woodley is the assistant editor of InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter at @KyleWoodley.

More from InvestorPlace.com

May 22, 2012 1:52PM

When Zuckerberg opened the NASDAQ on the day that FB went public he made a statement to the effect that "We aren't here to make money, we are here to change the world", or some crap like that.


Denouncing your citizenship to avoid taxes and censoring pictures of children with birth defects were the first 2 big changes to the world that FB made headlines about.The third headline was deservingly about the failure of their IPO.


Where does FB go after the faceplant?


They can go to Hell as far as I am concerned!

May 22, 2012 12:13PM

This is one of those times that I am glad the little guy couldn't buy into an IPO. We are sitting back laughing at all these big wigs and enjoying the losses.


May 22, 2012 2:34PM

What could Facebook do to rescue itself from its failed IPO? Simple, they could start charging a monthly user fee.


Like its not enough that right now FB allows you to reconnect with all your old highschool classmates and be treated like a loser all over again. And what about how FB allows you to see how the love of your life married well and retired, making you the all time loser everyday. Even better, FB allows you to reconnect with the most important women of your youth, only to find that they've all undergone double mastectomies and those magnicient breasts are gone, not to mention their sanity. FB allows you to see how well all your old friends have done in life, how they are all retired and living it up, while you will be working until you die, as a WalMart Greeter (if they'll even take you).


Yeah, FB should start charing a monthly fee. Maybe they could promise never to show commercials or shove advertising down your throat like Cable TV did. And then lie about that too.


Yeah, that's the ticket. FB should start charging a monthly user fee. Yeah. That would make everytinng alrigthty.


May 22, 2012 1:43PM
Did you hear the Facebook's internal news:  All  employees are laughing, plan to buy a new house, take a nice vacation, even plan early retire after exercise their shares.  Believe it or not, an artist works at Facebook will get 200 Millions after exercise his shares,  everyone there are Millionaire even a man works in the mail delivery room.  Where they get the free money from ?  so do not be a fool,  do not trust the Facebook and give them all your money,  they will jump out of the sink boat after they get your money,  see their face when they laughing  :)   easy  money
May 22, 2012 4:27PM

This stock should fall faster than a train for one simple reason.


The business model is flawed. 


With Google, Ads actually *work* because people use Google pro-actively.   They get on it to find something they are actually looking for, so ads are tagetting in that direction.  Of course you're going to have a reasonable click-thru rate because you're giving what the user *asked for*.


With Facebook, you blast ads in people's face, stuff they neither asked for and you hope want.  Well, that is not sustainable becuase eventually people treat that as spam and leave.  Nobody I know is making any money *using* Facebook unlike eBay for example.  It's very easy to leave FB.


And that is why I think the FB stock is a dud.  Plain and simple.


I don't know why this has be made so complicated when the explanation is actually rather simple.


What I am happy about, is to see FB stock like a train because it means for once the retail investor hasn't bought into HYPE.

May 22, 2012 1:24PM
Facebook will do fine at $12.00 per share.
May 22, 2012 1:40PM
May 22, 2012 5:02PM
having never used facebook i can only say, that from the outside looking in , it's nothing but a huge money grabbing scam. To me its'   nothing more than email attached to a giant address book ,pretty much like that thing Alexander Graham Bell thought of  . I'd like to think we're better than this. If all we can muster up for the biggest Hi-tech  ipo in recent history  is a bunch of bullsh-t like this ,we're in trouble
May 22, 2012 9:06PM
How anyone can justify the price of FB is beyond me. It has nothing...no assets, doesn't produce anything...

FB bigger than Ford, McDonalds?? OMG...there is a sucker born every minute.

May 22, 2012 10:12PM

Come on people who in their wright mind would buy a company  for $38 a share with a market cap of nearly 100 billion  that only earned 3.7 billion and slowing that pays no dividend and has a CEO in a hoodie leading the band ,what a joke! Are investors really that stupid well it seems so! this stock is not worth anymore than $10 . Compare facebook to the likes of Cisco that trades for about $16 made $45billion with a market cap of $90billion and pays a 2% yield  sounds like a better bet to me!

Dump facebook before its too late

May 22, 2012 6:34PM

i wish facebook  would  just go away just like a fart  in the wind

May 22, 2012 4:40PM
Why are people making excuses for something that should never have gone into an IPO?
May 22, 2012 9:31PM
Even George Orwell who wrote "1984" could have though that 900 million idiots would provide so much information about themselves that will remain on file for eternity.  And we're concerned about companies sharing our private information?  Why, we gave it to every idenity thief on the planet, including your photograph. Try retreving all of that info.
May 22, 2012 7:01PM
I hope it goes straight to Hell.  Destroys lives everyday.  Destroys families.  And no one clicks those stupid ads!  Enough already!  Besides, it should be renamed CIABOOK.
May 22, 2012 2:47PM
Oh! so many post ago on so many Facebook threads I told you this would flop. Never being the kind to say I told you so, I won't say I told you so..should be able to buy in at 15 or 16 bucks a share by the end of summer. How much smart money out there buys on the dips, this was one IPO to lay off of...
May 22, 2012 8:03PM
Who really cares about his sack of sh*t anyway? It's here today, and gone tomorrow. A fad at best, just like high tops, or mohawks. It's a gathering of sub 30 something kids who had a great idea, (or stole a great idea?) and now have meddled with it so much, and allowed every a**hole in the ENTIRE WORLD to taint it beyond comprehension. This is why the stock is down, because no one trusts these peach fuzz d-bags to do anything for anyone, but benefit their already bloated wallets, and betray the very country who made them what they are. I HOPE IT GOES DOWN IN FLAMES.
May 22, 2012 6:16PM

To the 900 millions fb users:  1) To close your fb account is almost impossible. That means fb can keep on claiming 900 millions users even when half of the users dump fb. 2) We can only deactivate the account. That means, that account still exists but it is not being used. 3) To deactivate the account, fb requires a reason for it. When we select a reason from fb multiple choice list, still it is not easy to deactivate the account. 


May 22, 2012 5:45PM
Like my space, this site is doomed for failure, its just a fad, I really hate folks got fooled into believing it would be a money maker.
May 22, 2012 4:24PM
one thing for sure though... he won't be doing a face plant in the new brides lap any time soon. talk about short honeymoons 
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