Facebook Stock Price “Soars” To About Half Of What It Was Worth At IPO

Image courtesy of Reality hurts

Reality hurts

When describing Facebook’s stock price, the words of the day appear to be “soar” and “surge,” when they should probably be “reality check.”

“Facebook Shares Soar” declared Bloomberg, which said the company had “posted a record surge after reporting sales that topped analysts’ estimates, allaying concerns over its ability to make money from mobile ads.”

“Facebook’s stock price soared by about 20 percent by 12:30 p.m. Eastern time, to $23.63,” wrote the NY Times, which in an uncharacteristic move of hyperbole added, “The ascent was as sharp as the fall,” referring to Facebook’s rapid tumble following the hubristic IPO price of more than $40.

Except while this gain is the biggest one-day increase in the stock’s price, it’s misleading and overly optimistic to compare a temporary $4/share gain with the nearly $7/share drop in the stock’s first day, or the fact that shares declined all the way to $17.73/share in early September.

CNN Money and the Wall Street Journal also jumped on the “surge” bandwagon, each talking to analysts who are suddenly telling their clients to “buy” because Facebook’s latest earnings showed a big improvement on mobile earnings over a year ago.

Of course they did. The company didn’t really have any ads on its mobile platform a year earlier.

And no one seems to be bothered by the fact that 60% of Facebook users are visiting the site via mobile devices, but mobile ad revenue only accounted for around 14% of the total ad money in the quarter.

Fact is, Facebook is only now beginning to even figure out how to monetize its mammoth user base. Just like any new business, it will take some time before it has a solid understanding of what it’s doing.

The coverage of high-profile stocks is too much like the sports talk radio, with every small victory a sure sign that a team is on the right path and every loss an omen of doom and gloom and it’s time to sell your season tickets and go home. And Facebook is like some top draft pick that everyone expected to lead them to the Super Bowl, but gave up on after losing a few early games. It will be some time before we know if Facebook’s stock is a Peyton Manning or a Tim Couch.