Monday, August 20, 2012

What Facebook Inc(NASDAQ:FB) Employees Should Know About Their Shares

Facebook Inc (NASDAQ:FB) stock’s debacle has prompted an outpouring of opinions, views, analysis, humour, angst on the web.

Here's the latest from Henry Blodget writing in Business Insider, with oodles of advice for Facebook employees and what they need to know about the shares of the company.

Facebook shares have dropped 50 percent since its stock market debut in May at $38 a share. Employees who were granted stock options prior to that have also seen their wealth diminish significantly.

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Employees of the company, who lived in a cocoon of hype and well-being prior to its going public, have seen their hopes and dreams dashed on the pitiless rocks of the stock market vagaries and fickle investor sentiments.

Blodget has a few pointers for the employees.

1. The stock crash has nothing to do with the quality of Facebook as a company - The price of shares is a barometer of analysts' and investors' estimation of the future prospects of the company in terms of its earnings and financial performance, he says. In other words its IPO price was inflated and the current battering should be seen as an attempt to bring down the price of the shares to their fair value, which is obviously what it has been all these months.

2. The market is re-assessing Facebook on three things - a) slowing revenue growth b) the effect on its revenues due to the shift of users to mobile devices and c) the impact of its investments (for future growth) of its profit margin

3. Facebook is unlikely to be the next Google.

4. Facebook shares are overvalued in relation to its earnings potential and capacity or growth. This means that employees should expect to see the value of their holdings go lower.

5. The release locked up shares into the market will effectively offer a resistance to any upsides on the stock, unless the company makes a dramatic announcement or does something that would signal acceleration in its growth. Blodget advises employees that if they feel like selling they should, sell.

6. LinkedIn and Amazon have higher price to earnings multiples but that’s because they have lower profit margins that are expected to expand fast.

7. There is nothing much you can do about the stock price in the near term, except grin and bear it.

8. If it’s any comfort, stocks of most companies go through a high-growth phase and then have to go through a painful transition before getting into a long-term growth. That is what Facebook is showing.

Blodget signs off with a kindly warning that investors should expect a lot of sideways movement in the stock in the future.

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