An investment report has some sobering news for investors who participated in Facebook Inc.’s (NASDAQ: FB, Stock Forum) US$16 billion initial public offering.
Since the social networking giant launched its IPO in May, the stock has tumbled to $19 from a high of $45, leaving investors with shares that are worth about half of the IPO value of $38.
At current levels, Facebook is sitting with a market cap of $40.5 billion, based on 2.14 billion shares outstanding.
The stock’s decline is widely attributed to investor concerns about the company’s ability to monetize its mobile services and many company insiders have unloaded positions as lockups expire.
This included the sale of over 20 million shares (worth $400 million) by director and early investor Peter Thiel last month.
Lockups are designed to stop insiders from selling too many shares immediately after an IPO.
But in its Morning Coffee newsletter, Canaccord Wealth Management says the selling pressure isn’t about to let up.
It notes that more than 1.4 billion shares are expected to be available for sale before the end of this year, leaving a huge overhang on the stock, even as Facebook takes steps to reassure investors and put the brakes on its sliding share price.
In a regulatory filing, the company said Chief Executive Officer Mark Zuckerberg won’t sell any shares for a year and that two of its directors have no plans to liquidate stock beyond what is needed to cover tax liabilities.
Facebook also said it will essentially buy back 101 million shares when it issues previously restricted stock units to its staff in October. It will spend roughly $2 billion to keep those shares off the market.
Still, a seemingly overpriced IPO may be the least of Facebook’s problems.
A bigger concern is the decision by major advertisers, such as General Motors Co. (NYSE: GM, Stock Forum), to pull their paid ads from Facebook because they didn’t believe advertising on the site would have the desired impact.
GM pulled its ads just 48 hours before Facebook launched its IPO.
As published reports have suggested, Facebook must grapple with the perception that while social networking sites are a great way for friends and colleagues to keep in touch with others, they may be less good (at least in Facebook’s case) at prompting people to shop around for products.
In recent regulatory filings, Facebook said its site enables advertisers to engage with more than 950 million monthly active users.
However, in the second quarter and first six months of 2012, the company said total costs and expenses grew more than revenue, due to in particular to significant increases in share-based compensation and related payroll tax expenses for restricted stock units.
In the quarter ended June 30, 2012, Facebook posted revenue of $1.18 billion, up from $895 million a year ago. The company also reported a net loss of $157 million or 8 cents a share in the quarter, compared to a profit of $159 million or 12 cents a year earlier.
Meanwhile, as noted by Stockhouse in an earlier report, Facebook is facing a class action lawsuit from angry shareholders who are unhappy with the way that the IPO was handled.
The lawsuit -- filed on behalf of shareholders in the U.S. District Court, Southern District of New York – alleges that prior to going public, Facebook was experiencing a severe and pronounced reduction in revenue growth to increased use of its Facebook app or website through mobile devices rather than a traditional PC.
This information caused the underwriters to materially lower their revenue forecasts for 2012. However, the lawsuit alleges that this information was not made available to Facebook shareholders.
The allegations have yet to be tested in a court of law.