Facebook, a social media site revered by youths around the world, has not experienced the same success in the stock market since the company first went public.

When the Facebook stock was first released in May, its shares seemed promising and it was valued with an initial public offering of $38 a share. The price of stock has split in half since it first became available for purchase, and is now priced at $19, according to the NASDAQ.

Critics blame Mark Zuckerberg, CEO and creator of Facebook, for a variety of shortcomings including lack of maturity and experience. Though he is the mastermind behind Facebook, many have said he is not CEO material, according to an Aug. 24 CNN article.

The company’s shortcomings can also be attributed to the fact that potential investors don’t know what revenue is being spent, and therefore don’t know when profits will increase, according to the article.

But others believe the issue has more to do with the state of the stock market rather than the company specifically.

“The owners overestimated its value,” said Donald Dutkowsky, professor of economics in the Maxwell School of Citizenship and Public Affairs at Syracuse University. “This is a turbulent stock market where there are very wary investors. They are looking for companies to show they will be profitable before they invest.”

Facebook is not to blame for all of its trouble. Some of their difficulties can be attributed to a turbulent stock market and wary investors hesitant to take risks, Dutkowsky said.

The only comparison that can be drawn is with the dotcom period, but Dutkowsky said the two scenarios are quite different as the dotcom period took place during a market bubble.

With Facebook’s low stock value, the question is not whether the stock was initially overpriced or if investors have lost trust, but if Facebook can find a way to regain stock value.

“Facebook needs to show that it is more robust and successful to raise value,” Dutkowsky said. “Investors look to buy stock based on how well they think it will produce and how profitable it will be.”

But declining stock prices are not slowing down improvements to the company. Facebook recently announced an expansion project to its campus in Menlo Park, Calif. Architect Frank Gehry will design the company a 420,000-square-foot, warehouse-style space to house 2,800 engineers, according to an Aug. 27 New York Daily news article.

Though investors and critics are consistently questioning Zuckerberg for lack of profit, it does not seem to be his primary concern.

In a letter Zuckerberg wrote to investors before going public, he said: “We don’t build services to make money; we make money to build better services.”

 

Published on August 28, 2012 at 1:25 am

Contact Andrew: amfeld01@syr.edu