Facebook Drops Amid Persistent Concerns About Mobile Growth

As seen on Bloomberg.com

By Brian Womack

Facebook Inc. (FB) declined the most in almost two months amid renewed investor concerns about how quickly the world’s largest social-networking service can boost sales from the growing number of users on mobile devices.

Shares fell 9.1 percent to $20.79 at the close in New York, the biggest drop since July 27. The stock has slumped 45 percent since its May initial public offering, and hasn’t traded above its $38 IPO price since the day after the share sale.

Facebook also slipped today after Barron’s said the company is overvalued and may drop to $15 a share or lower. The stock had been gaining since Chief Executive Officer Mark Zuckerberg touted prospects for mobile growth at a conference earlier this month. Still, investors are concerned about the pace at which the company is making money from its ad services on wireless devices, where members are increasingly accessing the site.

“We do not believe success in mobile for Facebook can come without some collateral damage in the near-term to the larger, more profitable desktop platform,” Jordan Rohan, analyst at Stifel Nicolaus & Co. in New York. “We assume that revenue upside from mobile is a bit further off than Zuckerberg was signaling.”

In a Sept. 11 interview at the TechCrunch Disrupt conference in San Francisco, Zuckerberg said the company was addressing the missteps that had made it tough for Facebook to reap the benefits of mobile advertising and was building its search capabilities. Shares rose 7.7 percent the next day.

Advertising Market

Facebook, based in Menlo Park, California, is struggling to keep pace with rivals in mobile advertising. The company may claim only 2.8 percent of the $2.61 billion U.S. mobile-ad market this year, ranking it sixth, behind No. 1 Google Inc. (GOOG), which is expected to have 55 percent of the market, according to EMarketer Inc.

Pandora Media Inc. is second, with 8.7 percent, and Twitter Inc. nabs the No. 3 spot, claiming 5 percent.

In addition, Facebook is projected to lose its lead in the larger display-advertising market in the U.S., according to EMarketer. Facebook is estimated to take in $2.16 billion in display ad revenue this year, while Google may have $2.31 billion, giving it the No. 1 position. Facebook took the top spot from Yahoo! Inc. last year.

Facebook, whose price-to-earnings ratio is higher than rivals such as Google and Yahoo, is also grappling with questions about the stock’s valuation. Barron’s said Facebook is overvalued and the shares may drop as it falls behind in capitalizing on the growing number of mobile-device users. Richard Greenfield, at analyst at BTIG Research, said Facebook’s mobile strategy makes him concerned, according to the newspaper.

The expiration of lockup periods for some employees to be able to sell 234 million shares by Oct. 29 and 777 million on Nov. 14 may keep the stock depressed, Barron’s said, without citing anyone.

Estrategia Investimentos S.A.