Facebook’s stock is tanking – did investors get played by big banks?

29 Jul


Although Facebook (FBmet expectations in its first-ever earnings report on Thursday, the reaction from investors has been decidedly ugly so far. By the end of trading on Friday, the company’s stock price had dropped by 117% to close at $23.70, or about half the value of its 52-week peak of $45. Making things worse, Facebook’s big slide came on a day when the NASDAQ closed up 2.24%, meaning Facebook can’t plausibly blame its slide on weak U.S. GDP numbers or other external factors. 

As Forbes’s Nathan Vardi notes, Facebook was never really in an ideal situation to go public this year and investment banks used the company’s brand-name status to hype it to unreasonable expectations, especially given that no one knew whether the social networking giant had really figured out how to create a sustainable business model at the time.

And when investors learned yesterday that Facebook wouldn’t be providing any third-quarter guidance despite the fact that its capital expenditures had ballooned by 213% year-over-year, well, that just had “sell off” written all over it.

The bottom line, then, is that investors aren’t yet convinced that Facebook knows how to make sure its large investments will pay off in terms of revenue growth. And until that happens, early Facebook shareholders will likely continue to take a bath on their investments.




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