Facebook (FB) Stock Crisis: FB Shares Hit New Low Amid Threat From Best of All Worlds


It was another week of bad news for Mark Zuckerberg and the Facebook team. The stock price hit yet another all-time low, and the 1% of Europe launched a social media alternative for the rich, over 21 millennials of Instagram.   

Last Friday, Facebook took another nosedive ending the day at $18.03/share (after hours). Market analysts are busy scrapping previous stock price targets to align with a more realistic 1-year view of FB’s anticipated performance. For all intents and purposes, it appears that everything that could go wrong with this IPO has gone wrong thus perpetuating the never-ending public relations nightmare. 

The firms that cut price targets include Bank of America and BMO. Each firm dropped their target price at least $10/share. Bank of America’s new target is now set at $23.00 while BMO continues to be less optimistic with a $15/share target. 

Stifel Nicolaus has not given a price target on the stock and did cut their estimates for Facebook’s 2013 forecast. In a note to clients, Stifel’s Jordan Rohan explained, “Although valuation appears tempting, the uncertainty of the earnings trajectory and increasing public float leaves us cautious.”

One key factor in the devaluation of Facebook’s stock is the share dumping that has already occurred after the recent post-IPO expiration releases. In August, approximately 271 million shares were released. Given the numerous lock-up expirations coming up with in the next year (1.2 billion shares in mid-November), investment firms have become more cautious about the target price and short term gains.

In a statement to Bank of America’s clients, Justin Post wrote, “Facebook has multiple lock-up expirations over the next year, and recent selling activity on the August lock-up suggests to us the risk of future selling pressure.” With the November lock-up expiration looming, Post said, “We wouldn’t expect the stock to see buying momentum until December.”

In addition to the concern that early investors and employees will rush to sell thereby further increasing the company’s float risk and decreasing share value, investor confidence continues to wane due to the perception of a weak advertising model. 

David Salmon of BMO expressed this concern in a letter to investors by stating, “Checks on paid media spending remain mixed; many conversations referenced a ‘pause’ in order to reevaluate earned/owned/paid mix and ROI [return on investment] measurement.” He also stated that “continued industry pricing pressure” remained a concern. 

Another concern Salmon cited was that investor confidence, “much worse” than advertiser confidence. However, Salmon believes that once the lock-up expiration challenges have ended the focus will shift back to Facebook’s fundamentals.  

Salmon from BMO has an underperform rating on the stock while Bank of America’s Post chose to keep a neutral view due to the “opportunities for new ad formats.” 

Rohan from Stifel kept a hold rating and agrees that Facebook’s platform has potential along with “significant” challenges in the ability to monetize. He also noted, “We believe the period of indigestion may continue as more shares come to market, limiting the positive reaction to growth initiatives.”

Meanwhile, across the pond the millennial hero Mark Zuckerberg has a new challenger for the 1% demo from a 57-year-old Sweed,  Count Erik Wachtmeister. 

Last week, Wachtmeister launched uber-exclusive BestOfAllWorlds.com. “Best Of All Worlds” is an invitation only website for the over-21 set of the world’s elite. 

This is not the first foray into the social media spectrum for the MBA holding, son of a former ambassador, and former investment banker has entered into. In 2004, he launched the exclusive site It’s A Small World. In 2006, the Weinstein Company invested in It’s A Small World and Wachtmeister left in 2010.

The customer model for “Best of All Worlds” is well organized. Wachtmeister started the launch process and customer build last May by sending out 5,000 invitations to an exclusive group of members. The membership group has now grown to nearly 25,000. 

He knows his demographic and set up 4 member modules: family, social, party, and professional.  Once the member has selected the member ‘mode,’ they then have the opportunity to join various forums called “worlds” with topics including businesses, food and wine, health, and a better world forum to keep the conversation rolling for charitable and philanthropic endeavors. 

Wachtmeister has thought through every detail of the world’s forum including bringing well known journalist Riz Kahn on board to moderate the forums, as well as topic expansion to include a focus on film, polo, new mothers, etc.

The monetization strategy is also well defined. The first month of will be ad-free with revenues coming from fees for services like hotel and restaurant bookings. Through advanced filters and controls, members retain the exclusivity and greater control over their data from a site that meets all of the European Commission’s privacy guidelines and the wants of his target market. 

To date, the site has been self-financed along with funds from investors in the U.S., Europe, and a member of the Saudi royal family. Prior to the launch date, Wachtmeister was seeking an additional $5 million to $10 million in additional financing. Given the planning that went into the site, the in depth customer insights Wachtmeister already possess, he may very well be able to swing the extra cash.

Given the careful planning, it is conceivable that Wachtmeister would be able to expand upon the platform with added security measures thereby giving the rich, under 21s of Instagram a forum of their own thereby reducing the parental concern over personal security risks. This,  however, has not been discussed nor is it in the business model for this new start-up.

As Facebook continues to reshape their monetization strategy and platform, one can only hope that they adopt the 1% strategy and focus on customer first – even if the service is free. 

Until then, there’s another round of shares coming to market and investors are re-setting expectations. The question that remains is how many will reap gains and how many will chalk this year up as a loss?