As shares in Facebook continue to find new lows, local investors are staying clear of the social network.
The group hit a new low on Tuesday (1 August 2012) touching $21.61 before ending the day 6% off at $21.71 a share, 43% below the $38 a share IPO price when it started trading on 18 May.
On Wednesday (2 August 2012) the social network’s stock dropped a further 4.02% to $20.04 at close on the Nasdaq.
Francois du Plessis, CEO of Vega Capital told BusinessTech that prior to its IPO, Facebook received “the usual curiosity, but none of our clients hold stock”.
“It is evident that its sales growth is slowing rapidly,” the company head remarked, highlighting growth of 112% in Q1, 2011; sliding to growth of 107% in Q2, 2011; and then down to 55% in Q4, 2011, and 45% in Q1, 2012.
Du Plessis said that after losing 48% from its all-time high, Facebook is still trading on a valuation of 50 times its earnings.
In delivering its first results since its $100 billion IPO, for the second quarter, Facebook said last week that revenue increased 32% ($1.18 billion). The company, however, did not offer an outlook for the third quarter.
Monthly active users grew to 955 million, up from 901 million at the end of March.
Nadim Mohamed, investment analyst and partner at First Avenue Investment Management said: “FB produced solid financial results and its stock price has come down significantly to a level where many analysts see them as a buy. My concern is that FB might not succeed in establishing itself as a mainstream advertising channel in the longer term – it is too uncertain right now for us to consider an investment.”
Investors have questioned the company’s ability to sustain growth and make money from its growing mobile audience.
The analyst pointed out that advertising accounts for the majority of Facebook’s revenue and many large advertisers are asking the question whether their ad spend on Facebook produces any measurable return. “It would be interesting to see how they compete against Google Adsense going forward, as this will determine their ad revenue potential,” Mohamed said.
Looking ahead, from 16 August, company insiders including directors and employees will be able to sell 268 million shares of stock in Facebook, and then between 91 and 181 days after its IPO, insiders will be able to sell a further 137 million shares.
Despite its fall from grace, Reuters reports that many analysts still see the stock bouncing back.
Six analysts rate the stock a “strong buy,” 11 rate it “buy,”, 17 rate it a “hold”, while one each rate it a “sell” and “strong sell”, according to Thomson Reuters’ StarMine.