Since being the first American company to makes its debut (albeit a rocky one) on the NASDAQ stock exchange with a $100 million valuation, Facebook’s stock has lost more than half of its value. As of August 23, 2012, Facebook’s value was $41.95 billion.
In its earnings report a few weeks ago, the Facebook team—CEO, Mark Zuckerberg and CFO, David Ebersman—tried to restore market faith in the stock by emphasizing the growing subscriber base, especially among mobile users. Analysts, however, are concerned that Facebook may not be able to exploit the growing mobile use of its platform. While the number of Facebook users has continued toward one billion, Facebook has yet to find a way to monetize increased mobile access through advertising. While Facebook has experimented with various options, none appears to satisfy investor skepticism.
Some analysts view the decline of computer access to Facebook as a case of Facebook fatigue. This, however, doesn’t necessarily comport with the fact that Facebook is the most used application across every mobile platform. Thus, it appears that rather than leaving Facebook, users simply are accessing it on their phones. The twin challenges for Facebook are to find a way to advertise without reducing usability of its mobile platform and monetizing the plethora of personal data it retains on the mobile use of its subscribers.
The stock price decline has been exacerbated by the recent release of some restricted stock units (RSUs)—stocks awarded by Facebook to investors and its employees before the IPO, but that only now are allowed to be sold. This process began last week with the release of 271 million shares and will continue through the fall. It is estimated that over the next four months, two billion Facebook shares will become eligible for sale—which amounts to about 70% of Facebook’s total shares outstanding. Last week when the shares entered the market, Facebook’s share price dropped ten percent. This week it was confirmed that Peter Thiel, cofounder of PayPal and initial investor in Facebook, sold 20 million of his shares.
Facebook may also face a brain drain problem due to the combination issuing restricted stock rather than stock options and the declining stock price. Restricted stock is different from stock options in that if a person holding an option leaves the company before the option is vested, he receives nothing. Thus, the option holder has the incentive to stay through the vesting period. If, however, a holder of restricted stock leaves before it is fully vested, he still receives partial value for his stock. Thus, holders of restricted Facebook stock that leave before it is fully vested lose only the potential gains over the remaining vesting period. The recent exodus of several executives suggests that they believe the stock price will not be increasing anytime soon.