Last updated: July 31, 2013 9:52 pm

Facebook shares touch $38 IPO price

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
A member of the media takes pictures of Facebook CEO Mark Zuckerberg as he speaks at an event at Facebook's headquarters office in Menlo Park, California, on January 15, 2012. Today, Facebook announced the limited beta release of Graph Search, a feature that will create a new way for people to navigate connections and search social networks©AFP

User-friendly: Mark Zuckerberg predicts Facebook’s Graph Search will become the third pillar of his company, alongside the Newsfeed and Timeline

Facebook shares briefly returned to their initial public offering price of $38 on Wednesday in New York, symbolising a turnround in investor confidence in the company since its troubled public offering last year.

The shares opened at $37.96 on Wednesday and soon after touched $38.31 before slipping back to close at $36.80. With 2.44bn shares outstanding, that gives Facebook a market capitalisation of about $90bn.

The stock has rallied about 40 per cent since last Wednesday, when Facebook reported a surprise jump in mobile ad sales that surpassed even the most optimistic analyst projections.

The shift in its mobile advertising business pushed overall revenues and profits for the second quarter well above expectations and proved to the internet company’s doubters that it had finally caught up with its users’ migration to the mobile internet.

“The second quarter numbers were so spectacular, it really quieted the naysayers,” said Brian Wieser, analyst with Pivotal Research. “Some institutions are jumping in because they realise this is a good business and they’ve been on the sidelines wrongly and they don’t want to miss it.”

Facebook shares have not traded at or above the $38 initial public offering price since the first days following its May 2012 debut, when Facebook underwriters had to intervene and buy stock to keep the price from falling below the issue price.

Facebook

The share price was dragged down by slowing revenue growth and reports that Facebook had a serious weakness in its mobile strategy, as it generated nearly no income from mobile advertising at the time. General Motors also withdrew paid advertising from Facebook just days before the IPO, causing many investors to doubt the company’s business model and believe the opening stock was overpriced.

Confusion around Facebook’s overall advertising plans continued through the year, resulting in wide-ranging analyst ratings and a volatile stock.

The company pursued the development of several new advertising products and growth strategies through the second half of 2012 that finally began to show meaningful results in the second quarter of 2013.

The company reported $1.6bn in ad revenue for the quarter, 41 per cent of that from mobile.

“We are investing in mobile, measurement, and product innovation,” said Sheryl Sandberg, chief operating officer, during a call with investors last week. “The results we’re reporting today demonstrate the early returns on these investments.”

However, Mr Wieser warned that the enthusiasm for the stock could be shortlived, and investors could be disappointed when future quarters do not deliver the same surprises.

“They will still grow fast, but it would be shocking if they kept up this pace,” he said. “The stock is moving based on where the stock will trade rather than on in-depth understanding of the business.”

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in

SHARE THIS QUOTE