Heralded Facebook Shares Fail To Impress

Facebook's stock price continues to tumble after its tumultuous IPO. Shares are down more than 25 percent since the opening day of trading last month. This all comes as more analysts question if Facebook can generate advertising revenues to justify its lofty valuation.

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Facebook's stock has fallen more than 25 percent since the company went public less than a month ago. What was hyped as the biggest technology IPO in history has quickly become a black eye for both Wall Street banks and Facebook itself.

But that does not necessarily mean that the company will move quickly to appease investors, as NPR's Steve Henn explains.

STEVE HENN, BYLINE: Nelly Sia-Palm(ph) bought $1,000 dollars in Facebook stock on its very first day of trading.

NELLY SIA-PALM: I guess I honestly didn't think I would be able to buy shares that day.

HENN: She was expecting an old school Internet stock frenzy. She paid $40 a share. Today Sia-Palm's lost almost a third of her original investment. But she's decided to hold on for now.

SIA-PALM: If let's just say it just starts going down and down and down to like the teens, then at that point I might decide to sell.

HENN: This isn't the IPO story so many of us remember from the 1990s.

SCOTT KESSLER: How did this happen?

HENN: Scott Kessler is an analyst at S&P IQ.

KESSLER: How did this IPO that seemed to be so kind of anticipated, so heralded, turn into a stock that has dramatically underperformed?

HENN: And actually, Kessler's not really baffled by this. He was one of the first analysts on Wall Street to recommend against buying shares in Facebook. Kessler says even today, Facbeook's profits don't justify its stock price. Even after the recent plunge, he says the company's share price is still propped up by hype.

KESSLER: You know, I am aware of the fact that this was and is a company where there's tremendous interest and that interest can generally lead to interesting things happening - lets just say that.

HENN: Its stock price - even now - is only justifiable if you assume Facebook is going to go on to do great and enormously profitable things - like change advertising as we know it.

Carlos Kirjner is an Internet analyst at Sanford Bernstein. He says while this is possible...

CARLOS KIRJNER: We think that all this potential is tremendously uncertain.

HENN: In other words, investing in Facebook is not a sure thing. It never was. Instead, for an investor going in with their eyes open, Facebook was a speculative long-term bet. And its largely a gamble on one man - Mark Zuckerberg. Even though the company has sold shares to the public, Facebook's co-founder and CEO retains nearly absolute control. He owns a majority of the voting stock. He can't easily be fired. The board of directors can not really overturn his decisions. A shareholder revolt will never push him out.

So while many companies in a similar spot might be scrambling to boost profits and placate investors, its unclear if Facebook has to respond at all.

KESSLER: I think that's a good and really important question and I don't know the answer.

HENN: Scott Kessler.

KESSLER: Facebook's priority is its users - is user engagement and is the user experience. They are not particularly interested in or focused on short-term financial results.

HENN: And while that might be good news for the more than 900 million people who don't want their Facebook page cluttered with new intrusive ads, it could also mean that Facbeook's most recent investors will have to wait a long time before they see any return on their money.

Steve Henn, NPR News, Silicon Valley.

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