Facebook is going through a rough patch, and so also its stock.
When the 100 billion $ Social Networking Giant debuted from NASDAQ on May 17, merely 3 months ago, nobody had expected the stock price will fall flat by 50% in such a short span of time.
Soon after the listing, at a price of US$ 38, Facebook stock is experiencing a never ending free fall, all the way to US$ 19. And, nobody knows, where the support is.
Investors are also speculating a price target of US$ 14 by the end of the year 2012. Sellers are dumping Facebook stock as if its a rotten egg, and buyers are not in a mood to buy even at such a throw away price.
There are 3 solid reasons why Securities Analysts all over the world are warning investors to stay away from the Facebook stock.
1. Fake users: The 83 million fake user accounts on Facebook, out of 950 million is a cause for concern. Most of the fake Facebook accounts are from developing countries like Indonesia and Turkey.
These fake accounts are mainly duplicate accounts of existing users (multiple accounts of one person), accounts created to send spams and pages created for pets (dogs and cats).
Facebook also adopts a wrong method to count its active users. It counts user as anyone who uses Facebook account to login to external websites.
2. Click frauds: There is accusation of widespread fake paid Ads clicking, and sending bots instead of real users. Recently a music platform start-up company Limited Run claimed the bulk of their Ads clicks were fake.
According to this company, 83% of paid traffic from Facebook were false (from bots). Facebook is investigating the click frauds along with Limited Run officials.
3. Low earnings: The disappointing 2nd quarter earnings report and higher spending are the reasons investors are dumping Facebook shares. The company also revealed that it will spend more in marketing and sales to get more Ad revenue from its 950 million users..
There is also increased doubts about its high valuations and growth prospects.
4. Failed monetization strategy: It seems like, with every passing day, Facebook is failing on its ambitious Mobile Monetization Strategy. People are even comparing Facebook’s weak monetization strategy withe the search engine giant Google.
5. Negative attitude towards its developers: Facebook is facing a huge criticism from its developers for changing the rules in the game at half-way. The relation between Facebook and its developers has turned dirty due to its step-motherly attitude towards the latter.
Now rumor is that – Hundreds of millions of Facebook shares hold by its employees (according to IPO contracts) will flood the stock market with motivated sellers, crushing the stock to even lower.