Facebook (NASDAQ:FB) is the largest social network in the world, with nearly one billion active users each month. Launched in 2004 by Mark Zuckerberg in the Harvard campus, Facebook has become a phenomenon in recent years, changing the way people relate online and becoming one of the most powerful channels for public information and promotion for companies .
At the end of June 2012, Facebook was boasting 955 million active users per month, of which 543 million are users that access the social network through mobile devices (smartphones, tablets). Every day, over 550 million people go to Facebook, or about 8% of world population. The “Like” button, which helped Facebook become the queen of social networking is pressed every day more than 3.2 billion times, and users upload over 300 million photos per day.
Despite the impressive figures and enjoyed popularity among users, Facebook has fallen prey to its own success when it was time to get listed on the stock exchange. Facebook listing has been eagerly awaited by the investment community worldwide as a benchmark for the new age of investment in cyberspace. Therefore, the founder of Facebook, Mark Zuckerberg, investors who helped him with money to develop the company and investment banks that they have committed, attempted to make a memorable listing from Facebook IPO.
In mid-May, Facebook had sold on the NASDAQ stock exchange shares worth $16 billion, being valued at $100 billion. Zuckerberg went straight in the top of the world’s billionaires with a fortune estimated at the time at over $20 billion. But euphoria took only one day, as the stock started to fall. From $38 initial public offering and a maximum of $42 in the first day of trading, Facebook shares fell today to $19, and those who bought shares at listing price have lost half of their money. The value of the company evaporated in three months by over $50 billion.
The explanation for this development is that investors who initially were left blinded by the Facebook popularity and paid a very high price have realized that it would be difficult for the social network to turn this popularity into money. In the last fiscal year (June 2011 – June 2012) Facebook had revenues of $4.3 billion and a net profit of $575 million. Therefore, at current market capitalization of $41 billion, price to earnings ratio (P/E) of Facebook is 106, compared with 20 for Google and 16 for Apple.
The future development of Facebook shares depends on the results that the company will report in the next few years, and, if they are not as expected, chances are that shares will fall more.
In addition, changing user preferences could cause Facebook to decline in coming years if more interesting alternative will appear on the market. Facebook attempts to place more ads or use users’ “like” to promote certain products or services may turn away a growing number of users. Similarly, charging for services which were free before, could cause Internet users to seek alternatives.
On the other hand, Facebook has to do something to raise revenue, if it wants to please shareholders. The future of Facebook will most likely depend on how the social network will be able to resolve this dilemma.
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