CEO Mark Zuckerberg has lost $5.8 billion on paper since he took the company public a year ago. Call it a “fine” for allowing the company’s share price to dwindle this year.
And although shares have climbed notably higher since hitting a low in September, the stock has a ways to go before it reaches its IPO level.
Can’t say that we’re surprised.
We’ve been dogging Facebook long before its IPO.
In January 2012, Chief Investment Strategist, Louis Basenese, provided the three most compelling reasons why the company was doomed to fail from the start.
~Reason #1: Social Media IPO Flops
Both Zynga (ZNGA) and Groupon (GRPN) had flopped during their IPOs. Zynga traded below the offering price on its first day of trading. And although Groupon zoomed 55.7% higher on the first day of trading, within weeks, the stock collapsed to trade below its IPO price of $20 per share.
Today, they’re both trading way below their IPO price.
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~Reason #2: Beware Slow Growth
With IPOs, you’re essentially investing in the future of the company. So if that company can’t grow, watch out below!
And as Louis said last year, “In about four years’ time, Facebook’s user base went from 66 million to 800 million. If Facebook grows at the same rate over the next four years, its user base would hit 9.7 billion. I can guarantee Facebook isn’t going to keep growing that fast. There literally aren’t enough potential customers on Earth.”
~Reason #3: Who Needs Profits?
Not focusing on profits is fine and dandy when you’re a private company. Not so much when you’re a public company. As we all know, Wall Street obsesses over profits. Every quarter. That’s why stock prices ultimately follow earnings.
So the fact that Mark Zuckerberg wasn’t focused on profits from day one was a huge red flag. As he said in an interview with The Wall Street Journal before the IPO, “The thing to take away isn’t that we don’t care [about business]. People for years were asking me why aren’t we trying to make more money. I would say I’m trying to build a business for the long term…”
Doesn’t sound like such a good idea now, does it?