In this photo illustration, a Facebook logo on a computer screen is seen through glasses held by a woman in BernThomas Hodel
Facebook Inc. is down again, threatening to fall below the $20 (U.S.) threshold for the first time since the company went public in May. On Thursday in midday trading, the shares fell to a new low of $20 – down 47 per cent from its starting price.
Does that sound like a bargain? Facebook's initial public offering was notorious on a number of fronts, and valuation was one of them. At an initial price of $38, the shares traded for an astounding 100-times earnings, implying huge growth assumptions.
Those assumptions have now been challenged. In Facebook's quarterly results, released last week, revenue grew an impressive 32 per cent – but that marked the slowest growth since the first quarter of 2011. And while the number of active users grew 29 per cent over the previous year, quarter-over-quarter growth slowed to just 6 per cent.
Now, the Wall Street Journal points out another potential problem: Some big mutual fund investors are ditching the stock. The newspaper reported that Fidelity Investments was an early investor in Facebook, buying a stake in the company when it was privately held and adding to the positions when the company went public. In June, though, 21 Fidelity funds sold 1.9 million Facebook shares after a holding period of six weeks at most.
Fidelity isn't alone. The Journal reported that Turner Investment Partners' Large Growth fund dumped 28 per cent of its Facebook shares. And OppenheimerFunds Global Allocation fund sold 10 per cent of its Facebook holdings.
Investors are free to buy and sell stocks, of course. But the quick reversals by institutional investors – many of whom have reputations as relatively long-term investors – suggests either than they were disappointed by the early performance of the share price or that they no longer like what they see in Facebook.
At least the stock's valuation is coming down. According to Bloomberg News, the stock now trades at 41-times estimated earnings. If the stock falls another $10, it might start to look like a bargain.
David Berman