Facebook’s investors don’t ‘like’ its status on Wall Street

Kate Baxendale

On Friday, May 18, Facebook debuted with its IPO (Initial Public Offering) on the New York stock exchange.

The most visited social networking website in the world traded stocks at $38 per share, totaling a whopping $104 billion.

The rest of the story may not be as great for the social networking giant:

At the end of its first day, Facebook’s stock rose a mere 0.6 percent to $38.23. High expectations for the world’s biggest social network may have been one reason why it did not do so well.

When the first day “pop” did not happen, this started a sellout with Facebook underwriters like Morgan Stanley.

As lead underwriter, Morgan Stanley’s job was to ensure that the stock was being sold at or above the IPO. As the price of shares was nearing the IPO, Stanley was forced to buy shares in order to prevent the numbers from heading into negative territory.

Another reason Facebook did not do well on its premiere day on the market was because of a glitch in the Nasdaq. Trading did not begin until two hours after the market had opened on Friday. Soon the confusion set in; traders were unsure if their orders were going through, and some found that they were getting shares at a higher price than expected.

The confusion continued through the weekend. As late as the following Tuesday, traders were still uncertain as to whether or not their orders were made and at what price.

Stock prices continued to fall the following week, surprising some people familiar with the stock exchange. Other technological companies like Yelp and LinkedIn “popped” on their first day on the stock market. Many market analysts repeatedly warned the social network that its IPO was unreasonably high considering the company’s financial fundamentals.

Facebook has turned to more aggressive advertising on its website.

One option is to establish an advertisement inventory across the Internet. This raises the issue of privacy for users. Facebook already takes its users’ personal information (interests, hobbies, location) and creates ads that coincide with each user. If an ad inventory is created, users could be bombarded with potentially irrelevant ads for soccer cleats at every site that is visited.

Other ideas have been circulating among investors about how Facebook could generate revenue aside from advertisements. Currently, the social network site offers Facebook Credits, which users can buy for games like FarmVille.

So far, these credits accounts for about 18 percent (or $200 million) of Facebook’s total revenue. Facebook could begin using these credits for other popular applications like Spotify.

It has also been suggested that Facebook could generate revenue through photos, since the site holds 60 billion images to date. The social networking site could begin charging for high-resolution photos or for storage space.

Although Facebook did not have a successful first run on the stock market, it appears to have immense potential. With nearly 1 billion profiles worldwide, this company is an internet force. The world will have to wait and see how far Facebook is willing to push its limits in order to make a dollar.

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