Facebook is expected to lose a ton of money. The company once flew sky high and appeared to be able to do no wrong, but that can change in a flash if you do an IPO that goes flat in a matter of days. The company’s shares closed on Friday at $28.76, which is $10 below the price at which the offering started.
The stock is not rated as a “buy” by more than half of the 36 financial analysts who follow the company. The company is being questioned by investors about its ability to increase revenue and it’s long-run growth potential. They are also unsure how the company is gong to make money as its app expands to mobile phones.
The Facebook investors curse began when NASDAQ had some technical problems that hurt the company’s first day performance. This set both Facebook and NASDAQ off on the wrong foot, since the exchange was seeking to get higher quality offerings. Facebook was the biggest IPO handled to date by NASDAQ, and it flopped right in public view.
Facebook was the first American company to go public with an initial valuation to exceed $100 billion dollars. This made Facebook founder Mark Zuckerberg a multi-billionaire overnight.
Making earnings expectations for its first quarter on the market is critical for Facebook, for missing can cause your stock price to instantly plummet. The price change is due to a correction in your current valuation, as well as all expected future revenues for the company. The valuation change can be in the billions.
“If they miss, it would be catastrophic for the stock,” said Michael Binger, an analyst for Gradient Investments.
“This is a very important earnings quarter for them. It will establish in people’s minds how they think of the company.”
Facebook currently has 900 million users and is expected to continue its torrential growth. It is appealing to potential advertisers because it offers unique abilities to specifically target ads to consumers, creating a gold mine of possibilities. So, while the company is going to certainly grow, the biggest question for analysts is whether it is going to grow at the rate they initially expected.