good things come in 3s

Now that Facebook’s stock is above $30, its employees are breathing a sigh of relief

July 25, 2013
July 25, 2013

Facebook-stock-price_chart

Facebook’s stock got a big boost from its strong second quarter earnings, adding nearly $20 billion in market value over one day. Facebook’s shares opened today at $33.54 a share, its best performance since its fateful first day as a public company in May 2012. If the stock can stay consistently above $30 a share, there’s a sense from some Facebook staffers that the company will have turned the tide against the naysayers that have surrounded the company since its IPO.

Before Facebook went public, it was the hottest private company around and its IPO was one of the most coveted tickets among investors. The troubles began just before its IPO when it signaled that its mobile ad revenue strategy was growing slowly. After Facebook’s IPO priced at $38 a share, it went mostly downhill.

The first day of trading was marred by Nasdaq technical glitches. It turned out that, after the price of the shares and the size of the offering were increased just before the public listing, there wasn’t as much demand as expected. Facebook shares have mainly been trading in the mid $20s and at one point, they fell below $20 a share.

The once hot startup was suddenly seen as a has-been. There were calls for Facebook CEO Mark Zuckerberg to step down. Amid the criticism, Facebook was on the defense. The falling stock price affected morale among some employees (many of whom owned shares), and also recruiting talent, since many senior employees are offered stock options as part of their compensation.

Some employees felt if the stock could just get above $30 a share, the story would change. Obviously, the best way to turn the news around on your company is to perform better. And that’s what Facebook did. Its mobile ads picked up steam, accounting for 41% of the company’s advertising revenue in the second quarter, compared to 30% in the last quarter. The results were particularly impressive given Google’s disappointing performance in mobile.

The quick turn in investor opinion reflects the challenges for newly public companies of managing the quarterly earnings calendar, which often leads investors and analysts to focus on immediate results rather than long-term goals.

Yesterday, during the earnings call, Facebook executives emphasized that past investments in mobile and other areas were starting to pay off. Zuckerberg thanked investors and employees for their patience, saying with the first year as a public company under its belt, Facebook had “established a good foundation for the future.”

We’ll see if Facebook can keep it up. Facebook CFO David Ebersman said yesterday that because newsfeed ads started contributing to revenue in the third quarter last year, the year-over-year comparisons for the rest of the year could be skewed. He also said that because of investments in the business and some other issues, expenses will grow faster than revenue for 2013.

As long as Facebook can continue to grow its revenues, particularly in the crucial area of mobile, investors will likely be on board. And that will continue to boost the morale (and the shares) of its employees.

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