Facebook shares spook investors now. But long term?
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Facebook, for now, is more of a tell-me story, one whose success or failure will play out in the coming quarters, or even years. The company hasn't shown all it can do. Its revenue growth slowed. The company's revenue nearly tripled in 2010, compared with 2009.
In the first quarter of this year, revenue climbed 44 percent, higher than the 32 percent increase in the second quarter. Following in Google's footsteps, it did not offer financial guidance for the coming quarters, which makes it a riskier bet for investors.
Facebook also said it plans to increase its investments in the coming quarters. Higher expenses could mean lower profits.
Facebook, which is based in Menlo Park, California, was valued at $104 billion when it went public two months ago. That means investors placed a higher value on its stock than established companies such as McDonald's, Pepsi and even Amazon.
With Facebook's stock hitting a new low on Friday, the company lost as much as 39 percent of its value. It's now around $66 billion, a little more than 3M, the company that makes Scotch tapes, stethoscopes and sandpaper. It's also in the same range as American Express.
Despite the doubts, Mike Magan of Carmel, Indiana, plans to keep the 10 shares he bought at $34.25 each a few days after Facebook went public.
"I bought this thinking it was going to be something I was going to pass down to my kids," said Magan, who works for an industrial marketing firm. "I see this as a company that will be an Apple."
Other stocks he owns include Apple, naturally, which he bought a decade ago. Back then, it was trading at around $8 to $10. Now, it's pushing $600 as the world's most valuable company, thanks to successes with the iPhone and the iPad — the same devices confounding Facebook.
"My purchase of Facebook was a vote of confidence," Magan says, adding that he buys stock about every three to four years.
Analysts are generally positive on Facebook. Of the 27 analyst ratings available from FactSet, 15 are "Buy" or equivalent, while just three are a "Sell." Analysts tend to have longer-term views of stocks than many day-to-day investors.
"We don't view these results as dramatically good or bad," Citi analyst Mark Mahaney says. "Key questions remain: the future of Facebook mobile monetization and the future of Facebook user engagement."
