Facebook: 50 Billions Gone!

Facebook has lost more than half of its market value, and might lose a lot more. In my Why Did the Facebook IPO Failed so Hard post I described the main reasons why the Facebook IPO couldn’t be successful. However as the situation keeps evolving I see worrying signals. The company is presenting bad trends in terms of revenues, not that there isn’t a growth in sales, is just that investors expected a significantly higher growth.

However we must not forget that growth companies usually have to commit several resource to fuel its growth, which sometimes means increasing marketing, production costs, against short term profits. In this case Facebook increased its Research and Development costs and its Marketing costs, which might be a good indicator for the future. If the company had kept those costs proportional to revenues then they would have had a $450 Million profit in the last quarter, which as I said before is not brilliant but at least would kept their head above the water.

Honestly I still think that the IPO price was exaggerated, but let’s see how the situation evolves.


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