The big talker today is Facebook stock falling below $30, down nearly 23 percent from its May 18th initial public offering price. This as the rest of the market was higher. Part of this is pure casino, with options traders distorting the price by making bets on the future direction of the shares; part a rumored and potentially costly acquisition of Opera Software of Norway. But the falling price continues to reflect the fear that there’s no there there.
How does Facebook make money? Mostly by selling ads on its site. In an incredibly crowded online media market where few large sites will make sizable, sustained profits from advertising. Indeed, one of the problems with the IPO is that information about softening revenue was apparently shared only with a select few investors. Just before the IPO, General Motors opted out as an advertiser. Even so, Facebook brought in $3.71 billion in revenue last year, had net earnings of around $1 billion. The growth has been fast. But can it be sustained?
Do you ever click on the ads on Facebook? It reminds me a bit of Krispy Kreme, which went public in 2000 to a rapturous reception. But how many donuts can you eat? Do you eat donuts?More