Will Zuckerberg's vow reassure investors?

Facebook's CEO takes steps to renew confidence in his social network as early buyers bail and the stock takes a beating.

By TheWeek.com Sep 6, 2012 12:32PM

Arrows, copyright image Source Black, GettyFacebook's (FB) share price has been in free-fall ever since the social network debuted on the stock market in May.


The market value of the company has been cut in half, with investors fretting that Facebook does not have a sustainable revenue model and has fallen behind as its users increasingly switch from desktop computers to smart phones.


Early investors aren't helping matters by dumping their shares like rats fleeing a sinking ship. This week, CEO Mark Zuckerberg stepped in to stem the bleeding, vowing not to sell any of his Facebook shares for at least a year. Facebook's share price rose slightly in response, an indication that Zuckerberg's confidence-building move is having an effect. 


But will it reassure investors in the long term?


Yes. Clearly, Facebook is committed to protecting its stock: In addition to Zuckerberg, two Facebook directors committed to holding onto their shares, selling just enough to cover their tax bills, says Geoffrey A. Fowler at The Wall Street Journal. The company also said it would not sell stock to pay for a $2 billion tax bill, keeping 101 million shares off the market. "Together, the steps function like a kind of defensive wall around the Facebook share price," reducing the number of shares that are sold just as employees begin selling previously restricted stock. Without these measures, the stock likely would have plunged further. 


But it makes Zuckerberg look desperate: It's nice to see that Facebook's stock "finally is getting some attention" from Zuckerberg, says Tom Taulli at InvestorPlace. But Facebook's move to keep 101 million shares off the market, which essentially functions as a stock buyback, "traditionally is the tool of older tech companies, especially when they're seeing slower growth, as a way to artificially boost earnings per share." For a company that was billed as the next great tech stock, it's a step backward.


And the company's problems haven't disappeared: Zuckerberg's move is less a sign of confidence "than a clever bit of foolery," says Abram Brown at Forbes. Investors "should demand much more," including a long-term vision for how Facebook intends to compete with Google and Apple. Until that happens, you can expect Facebook's stock to "come under fresh -- and fairly intense -- selling pressure in the coming months." 


More from The Week:

Tags: FB
2Comments
Sep 6, 2012 12:44PM
avatar
No, the share price will continue to drop.      Sorry suckers!
Sep 8, 2012 9:14AM
avatar
This just further proves, that Zuckerburg had tunnel-vision in his desire to tap into capital and risked everything.  Or maybe he's an evil genius that's bored with the responsibility of running Facebook and wants to take the money and run.  Whatever.  Be careful what you wish for.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

126
126 rated 1
286
286 rated 2
474
474 rated 3
680
680 rated 4
626
626 rated 5
609
609 rated 6
620
620 rated 7
462
462 rated 8
304
304 rated 9
132
132 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
BIDUBAIDU Inc10
BXTHE BLACKSTONE GROUP L.P10
CELGCELGENE CORP10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.