Even as their company has lost nearly half its market value, Facebook
executives have had little to say in public about the stock. Instead, they've
talked up new ad programs and launched new features, including a beefed-up
version of Facebook's iPhone service, aimed at boosting their fledgling mobile
business.
But Facebook's stock market struggles pose looming challenges, analysts
warn. Talented employees might start to look elsewhere, after watching their
own shares lose millions of dollars in value. And some critics have questioned
CEO Mark Zuckerberg's leadership.
"Stay focused and keep shipping," is the mantra that Zuckerberg, the
company's founder and hoodie-wearing chief executive, has repeated to
employees since his former dorm-room startup began selling stock to the public
in the spring.
At $38 a share, the highly anticipated initial public offering valued the
company in May at a stunning $104 billion, but the stock began a steep slide
soon after. It closed Tuesday at $19.34 a share.
Although he has offered some reassurances to Facebook workers, Zuckerberg
has kept a relatively low profile since the IPO. That has frustrated some
investors and prompted critics to ask if the 28-year-old Harvard University
dropout is qualified to lead a public company.
"There's a growing sense that Mark Zuckerberg,
talented though he may be, may be feeling in-over-his-hoodie as CEO of a
multibillion-dollar company," said Sam Hamadeh of the New York investment
research firm PrivCo.
Zuckerberg's job seems secure because he controls a majority of
Facebook's voting shares. A Facebook spokesman declined to comment for this
article. But company sources say top executives take investors' concerns
seriously, while concentrating on building their business.
When pressed on a conference call after the company's last earnings
report, Chief Financial Officer David Ebersman told analysts: "Obviously we're
disappointed about how the stock has traded. But I think the important thing
for us is to stay focused on the fact that we're the same company now as we
were before."
Some experts say it's not surprising Zuckerberg would keep his head down
while the company struggles to deliver on the exalted potential that early
boosters saw in Facebook. Analysts say one of its biggest challenges is the
mobile platform, which is drawing users faster than its desktop interface,
while producing far less advertising revenue.
With nearly 1 billion active users around the globe, Facebook reported
$1.2 billion in revenue last quarter and more than $10 billion in cash on
hand. Its revenue growth is slowing, however, while the company has hiked
spending at a faster rate.
The company is investing in new mobile initiatives for future growth,
rather than focusing on short-term profit, Ebersman said last month. But
that's not enough to assuage investors who'd like to see better earnings in
the next quarter.
"If the guidance you can give investors would actually shore up their
confidence, that's probably something you want to do. But sometimes it may be
better to say as little as possible," said Simon Rodan, a management professor
at San Jose State.
That may explain why Facebook made no public statements about the recent
expiration of a 90-day "lockup" restriction that barred some early investors
from selling their stock, Rodan suggested. Analysts say Silicon Valley
financier Peter Thiel's subsequent move to sell more than 20 million shares
only made the stock look worse, as shares fell below $19 for the first time.
The company faces a bigger milestone in the fall, when another lockup is
scheduled to expire and 1.2 billion shares of stock, held by Facebook
employees and other early investors, become eligible for sale. If those
stockholders decide to sell, analysts warn they could flood the market and
drive the price down more.
The November lockup expiration could also lead to an exodus of valuable
talent. Experts say it's not uncommon for some workers at newly public
companies to cash in their stock and move on to the next startup. Based on the
company's filings, PrivCo's Hamadeh estimates Facebook employees hold about
450 million shares that will be eligible for sale in November.
Those employees have seen more than $8 billion in wealth wiped out since
the IPO, as their shares have lost almost half their value. While individual
holdings vary widely, that represents an average loss of $2 million on paper
for each of Facebook's 4,000 employees.
"That's always a concern," said Brandon Cherry of the Hay Group, a human
resources consulting firm that advises companies in Silicon Valley's
competitive labor market. In addition to rival startups looking for talented
engineers, he said, bigger companies like Google (GOOG) "may have an
opportunity to pull some people out of Facebook."
Even so, most Facebook employees are not facing an issue that has
surfaced at other tech companies, which grant options to buy stock at a
certain price. With options, the employee only makes money if the stock goes
higher. Most of Facebook's employee shares were granted outright, so they
still have value at the market price, even if that has declined sharply.
"They're going to have some people leave. But I'd be really surprised to
see mass defections of employees," said Stanford University business professor
Paul Oyer, an expert on labor economics. "The company is still doing well."
In recent weeks, Zuckerberg has told workers that outsiders may not know
or understand Facebook's plans. The sliding stock price is painful for some
employees, Zuckerberg acknowledged at a companywide meeting, according to The
Wall Street Journal, but he urged workers not to obsess over it.
Investors, however, are still worried about Facebook's challenges, said
Rick Summer, a financial analyst at Morningstar. The company may be building
its business, he added, "but I don't think that message has been communicated
well to the investing public."
