Editor’s note: This article was first published in May 2012, less than two weeks after Facebook’s IPO; the share prices, support levels ($30, $28, $25), options bets and the forecast of weak results for the next quarter all refer to that moment.
Personally, I got rid of my Facebook shares, even though it meant taking a loss of $11 a share, and I intend to buy back in later, because I think Facebook will probably do what it has to do and will end up delivering the potential that was expected of it. The stock has already broken what was initially the $30 support level and is on its way to breaking the new support at $28. Once that happens, the share price will probably head towards $25.
The doubts about Facebook centre on generating revenue from mobile traffic, and as some of you will have heard, the social network has shown interest in Opera, an independent browser with more than 200 million users. Rumour has it that buying it could cost around $1 billion. In fact, shares in Opera Software soared on the rumour. Another rumour has also surfaced about Facebook wanting its own mobile device (a Facebook-branded one). This rumour has been doing the rounds for some time, but it now seems that Zuckerberg has been in touch with engineers who have already worked in that market. The New York Times reported that Facebook had already hired six former engineers who once worked at Apple.
Once it has its own handset and browser, it would find it much easier to monetise mobile traffic. Of course, the results for the next quarter are not going to be very good for Facebook, all the more so if it goes ahead with the purchase, since the investment would eat into the net profit in its quarterly results.
To get an idea of what the market thinks about how Facebook will perform, we only need to look at the options market, which the company made a big debut in yesterday. The biggest bet in this market put Facebook shares at $25 on 21 July, followed by an expected price of $65 on 1 January 2014, and some far more bearish ones, to the point of putting it at $16 by December this year.
The truth is that all these scenarios are possible, and Facebook will probably end up taking off on the stock market and become a very profitable investment, but everything suggests that before it climbs back above $40, it will spend some time wandering around the $20-25 range.
Once it shows that it can generate more business and can take market share from Google, Facebook would begin its upward trend, because it would have shown the market that it is a reliable company with potential.
What Facebook has managed to open up with its stock market debut is the question of how viable the business model of internet companies really is, although that is another matter, and one we will discuss in a future article.
Beyond that, all that remains to say is that after almost a decade of investing, Facebook has been my first big investment mistake, because I rushed in. I only hope I have not been wrong to rush out as well (I don’t think so). We would have to wait about three months to see the results it reports, because if they are as bad as expected, there will be another drop, and we will have a clearer idea of when a rebound might come.
See also: How to invest when you’re young, inexperienced and short on money
In short: Facebook will end up being a profitable investment, but you have to let it go by until the right moment comes.
Featured image: Bjoertvedt, CC BY-SA 3.0, via Wikimedia Commons.
