Since July 21, 2013, the price of Facebook shares has substantially increased. As of August 4, 2013, the price of these shares has finally crossed the share price on the day this company went public. But does this dramatic increase in share price signal a pivotal turn in the road for this business?
We don’t think so. In an article titled Facebook Crossed Its $38 IPO Price, Ms. Evelyn M. Rusli, who wrote the article, sums up the last 6 months history for the stock: “[s]ince hitting a nadir closing price of $17.73 on Sept. 4, Facebook’s stock has more than doubled in 10 months, powered by increasing ad sales and signs that Facebook is finding its footing on mobile devices.” Ms. Rusli quotes Chris Baggni of Turner Investments who comments on the punishment Facebook shares have received (up to this point, that is) since the IPO: “[I]t only made sense that if they did the right thing, they would get paid.”
We think Wall Street has impatiently pushed Facebook forward into the position of a business doing “the right thing” (to quote Chris Baggni), when it is far too soon to reach this conclusion. There are two sides to any advertising deal. Publishers print ads and sponsors pay for them. Chris Baggni comments on one side of the transaction, but no one, to date, has commented on the other (meaning from the perspective of the sponsors).
Certainly there was the notorious comment from General Motors, published coincidentally with the Facebook IPO, of their intention to discontinue advertising on “the social network.” But mobile sponsors are a different set. We have yet to hear any opinions as to what they are getting from their click ads on Facebook’s mobile feed.
Unless and until verifiable, positive results can be ascribed to the sponsors paying for the ads, we can’t add our own congratulations to Facebook for “doing things right.” We think investors will do well to maintain a highly vigilant attention to news on this topic. The fact is share prices will likely change dramatically, either way.
© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved