August 24, 2012

A Social Media Bubble?

Were companies like Facebook and Groupon overvalued?

Shelby: Three months ago, Facebook employees cheered as founder Mark Zuckerberg launched the social network as a publicly traded company. Mark Zuckerberg sold more than 30 million shares personally, making more than $1 billion for himself. Other early private investors in the company also cashed out that day, together selling nearly $10 billion worth of shares.

Those private investors were selling their shares of Facebook to the public for the first time in what is called an IPO, initial public offering.

Now, Facebook is a public company, meaning anyone can own a piece of it. Investors were so excited to buy shares of Facebook during the IPO, the value of the company hit more than $100 billion. Today, it is worth half of that.

“Wall Street judges ‘hot’ differently that the rest of the world. It’s all about momentum and not necessarily just about size.

Shelby: Facebook’s size is still huge, with nearly a billion users worldwide. But its slowing momentum has left investors disappointed. And some analysts say Facebook is part of a social media bubble, meaning the real worth of social media companies became inflated. And now, that social media bubble has burst.

Zynga, an online gaming company that went public in December at $10 a share and is now trading at just $3. Groupon, the discount coupon site, started at $20 a share, and is now trading under $5.

Another thing that is worrying investors, beginning this month, Facebook workers and insiders can start selling near 2 billion shares, and that could drive the stock price even lower.

“Their shares are coming on the market. That’s increased supply. That, of course, affects demand and price. Classic economics.”

Shelby: Over the past week, some of Facebook’s earliest and largest investors cashed out.
PayPal founder Peter Thiel sold about $400 million worth of Facebook shares. And 28-year-old Facebook co-founder Dustin Moskovitz unloaded about $9 million worth of his holdings in the company.

With Facebook insiders cashing out, there is worry that is a signal to others to rush for the exits. And there have even been calls for CEO Mark Zuckerberg to step down.

Shelby Holliday, Channel One News.


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