Here’s Why Facebook’s Stock Is Falling to New Lows
The Facebook (NASDAQ:FB) fallout continues. Despite logging two days of consecutive gains last week, which is more than the Dow Jones Industrial Average can claim, shares of the social-media company fell 9.62 percent on Tuesday. Several rumors are abound in the market, but none seem to be providing support to the stock price.
Facebook is reportedly expanding its efforts on creating a smartphone. Nick Bilton from the New York Times writes, “One engineer who formerly worked at Apple (NASDAQ:AAPL) and worked on the iPhone said he had met with Mark Zuckerberg, Facebook’s chief executive, who then peppered him with questions about the inner workings of smartphones. It did not sound like idle intellectual curiosity, the engineer said; Mr. Zuckerberg asked about intricate details, including the types of chips used.”
When asked about the smartphone development, Facebook did not deny or confirm any details. The company instead turned to a previous statement to AllThingsD last year when it said, “We’re working across the entire mobile industry; with operators, hardware manufacturers, OS providers and application developers.”
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A move into the mobile space by Facebook is most likely driven by a need to better monetize its growing mobile audience. A Facebook employee said Mark Zuckerberg, the founder of the company, was “worried that if he doesn’t create a mobile phone in the near future… Facebook will simply become an app on other mobile platforms.” In an S-1 filing with the Securities Exchange Commission earlier this month, Facebook noted that the company does not “currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven.”
Although a smartphone created by Facebook may send the message that the company is willing to create new revenue streams, investors are not liking the news. Facebook shares fell more than 7 percent in morning trading and hit a fresh all-time low below $28.65. The decline also spilled over into Zynga Inc. (NASDAQ:ZNGA), which receives a large amount of its revenue from Facebook users. Shares of Zynga reached a new all-time low on Tuesday by plunging almost 8 percent finishing the day at $6.09 per share.
Since its initial public offering price of $38 per share, Facebook has declined about 27 percent. In its first day of trading on the Nasdaq, shares hit as high as $45, a far cry from where they are currently trading. Other well-known internet IPOs such as LinkedIn (NYSE:LNKD) and Groupon Inc. (NASDAQ:GRPN) also struggled shortly after going public. LinkedIn popped to $94.25 on its first day of trading, but fell to $70 one month later. Meanwhile, Groupon shares have declined from $26 in November to an all-time low of $9.63 made earlier in May.
Speculation is also building that Facebook is seeking to purchase face-recognition technology company Face.com, according to Israeli business publication Calcalist. Meanwhile, tech news blog Newsgeek says the size of the deal could be between $80 million and $100 million, a relatively small acquisition for the newly-public social networking company. Face.com has long been rumored to be an acquisition target for Facebook. According to blog The Next Web, the two companies have held numerous talks over the last few years, but Face.com has so far rebuffed offers because of the “low” price Facebook was willing to pay.
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