Last year, Facebook’s IPO was hyped as one of the most highly valued companies ever, according to data by Statista. With a valuation of over $100 billion, it surpassed all other comparable companies, including Google and Yahoo, during their respective launches on the stock market. However, the enthusiasm quickly turned into frustration; on day one, Facebook stock jumped slightly, but decreased from its opening price of $42 per share back to its IPO price of $38 per share. The trend worsened as time went on – last September, CEO Mark Zuckerberg described a drop down to a low of $20 a share as “painful.”
So now, the question becomes: what went wrong? Angry shareholders clamored for their investments to be made at least somewhat more valuable, and inevitably, some have turned to the legal system. While a similar lawsuit has been dismissed this past February, Gaye Jones has filed a new lawsuit in Delaware, alleging that Facebook’s shift to mobile devices at the time of its IPO has caused it to experience weaker revenue trends, and that these trends were not disclosed to initial key investors at the time of the IPO. One must note, however, that many similar cases have already been dismissed by a separate judge in Manhattan, as vague warnings about mobile development were conveyed by Facebook to shareholders prior to the IPO.
What are the implications of withholding financial information regarding Facebook’s mobile push? At the time, revenue from mobile applications has been slow, and Facebook had realized this. Contrary to Jones’ assertion of Facebook hiding information from initial shareholders and investors, Facebook had wrote in a disclosed regulatory filing more than a week prior to the IPO that the growth of Facebook mobile might be harmful to revenue. Yet at this point in time, Jones is arguing a moot point. Facebook’s revenue is currently rising substantially due to mobile advertising, as more and more consumers use Facebook from their smartphones.
This represents a wider trend at large: how often do we check our email, post statuses and pictures on Facebook, and use Twitter from our phones instead of the traditional computer? It’s also interesting to note how many of the more popular social media platforms, including Snapchat and Instagram, are available only on mobile phones. In fact, Facebook stated in January that as of now, mobile usage is higher than web usage, proving the mobile interface is the future of social media. Therefore, the trend moving forwards – that of mobile development – is one not to blame for struggles, but instead one to support in hopes of profitability.
Overall, Jones’ complaint of Facebook’s devaluation being caused by mobile development is questionable in a constantly evolving sphere of technology. While he may have a point in Facebook not being explicit about its weakness in mobile development at the time of Facebook’s IPO, saying that this was an unjust case of IPO misconduct is a weak claim. One must note the importance of natural fluctuations in the stock market, and that the market does not always fulfill our expectations.
Photo Credit : Marco Pakoeningrat