News Column

Facebook Stock Rallies Back From Post-IPO Doldrums Amid Campaign to Counter Doubts

June 22, 2012

Brandon Bailey

Facebook

After a disappointing debut, Facebook's stock has rallied more than 20 percent in the past two weeks as the company has waged an aggressive campaign to show that the world's biggest social networking service will continue to expand its business and make more money.

The stock closed Thursday at $31.84, a significant improvement after bottoming out at $25.52 on June 6, but still far below last month's initial public offering price of $38.

While the widely anticipated IPO set a U.S. record for valuing the company at $104 billion, the stock's subsequent plunge was accompanied by concerns about whether Facebook could maintain the rapid growth of its startup years. In recent days, however, the company has announced several moves aimed at increasing revenue from mobile advertising and online payments, while touting some favorable market research and endorsements by two big advertisers, Ford and Coca-Cola.

"Everything you've heard about the stock in the last week or so has been about revenue. It's clear they're trying to send that message," said Wedbush Securities analyst Michael Pachter, who faulted Facebook CEO Mark Zuckerberg for not showing enough concern about revenue and shareholders during the run-up to the IPO.

Despite the recent advertising initiatives, Argus Research analyst Joseph Bonner warned this week

that Facebook's business model still "warrants caution." He added that it's unclear how the company will make money from the increasing number of users who are accessing the service on smartphones and tablets, while growth in visitors using personal computers may be slowing.

But Wedge Partners analyst Martin Pyykkonen said Facebook's recent moves should help deliver more ads to users of mobile gadgets. He added in a research note: "We think Facebook is making notable headway" in developing its mobile business.

Menlo Park-based Facebook earned $1 billion in profit on $3.7 billion in revenue last year, most of it from advertising. In documents filed before its May 18 IPO, the company acknowledged that it made little money from mobile ads. Since then, however, the company has said it's starting to let advertisers design ads specifically to appear in the "news feed" of updates seen by mobile users.

Bloomberg News reported this week that Facebook is working to develop "location-based" mobile advertising, which potentially could let businesses target ads based on real-time information about where users are when they post updates to Facebook.

The company is also adding more features for mobile users, including the ability to use Facebook's "Like" button to share information from various Facebook apps created by independent developers, which could eventually help deliver more targeted advertising.

More broadly, Facebook last week disclosed plans for an advertising exchange that will let companies bid to deliver Facebook ads to users who have previously visited the companies' websites. Google (GOOG) has a somewhat similar program.

And this week, Facebook announced changes to its online payments system, which allows Facebook to collect 30 percent of every transaction it processes for developers who build Facebook games and other apps.

While the company will still collect that percentage, Facebook is eliminating a virtual currency called "Facebook Credits" and instead will let users pay with credit cards or PayPal accounts. Facebook also said it will let developers sell paid subscriptions to games or services. Analysts said both moves should help developers attract more users and potentially increase revenue for developers and Facebook.

Facebook has also been talking up the benefits of its advertising business. Last week, it ended a legally required "quiet period" after the IPO by trumpeting research that showed businesses saw their sales increase as a result of both paid ads and "unpaid" marketing campaigns on Facebook. The reports were produced by Facebook and comScore, which Facebook had commissioned to conduct a study.

The company got a further vote of confidence this week when The Wall Street Journal reported that executives with Ford and Coca-Cola said at separate conferences that they believe Facebook ads helped drive customers to buy their products. That helped ease the sting of General Motors' announcement last month that it was ending a $10 million ad campaign on Facebook because it seemed ineffective.

While Facebook touts its ability to deliver targeted advertising messages, the company has been criticized by privacy advocates for targeting that gets too personal. Facebook is in the process of settling a lawsuit over its "sponsored stories" program, which lets advertisers pay Facebook to deliver messages to users' friends that show when a user has "liked" a company or product.

As part of the settlement, attorneys for users who filed suit say that Facebook has agreed to offer users more control over when and how those messages are delivered. In a court document filed this week, the plaintiffs estimated Facebook could forgo up to $103 million in revenue if users opt to block the messages.



Source: (c)2012 San Jose Mercury News (San Jose, Calif.)


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