The long running saga of Facebook’s valuation and ongoing share price has taken another interesting turn over the last couple of days. Firstly Zynga, makers of social games such as Farmville, reported revenues were down significantly. Then Facebook revealed their first quarterly results as a public company.
Zynga and Facebook have a symbiotic relationship. Over 10% of Facebook’s revenue comes from Zynga and its games, so when Zynga reported that a profit of $18m for the first half of 2011 had become a net loss of $108m for the first half of 2012, the analysts were ready for bad news from Facebook.
And according to those analysts, it came. Facebook’s growth in the second quarter was slow. Its slowest since the start of 2011. And the analysts are obsessed with Facebook’s ability to tackle the mobile market and come up with a mobile platform that can handle ads while not putting off users.
Shares dived to a low of below $24. But in reality this is a company that had a revenue increase of 32% in the second quarter as it pulled in $1.18 billion. This is a highly profitable company with big revenues that is still growing.
Facebooks problem is a valuation of more than 50 times its earnings. It’s a problem that it can’t escape. While the value stays so high many will think it’s over-inflated. But if the value drops to a more realistic level, a lot of people will get badly burnt and it will shatter confidence in the company.
So what can Facebook do? Carry on regardless and fix the one thing that seems to be obsessing the analysts, their mobile offer.
With their recent almost unnoticed purchase of social discovery app Glancee and comments from the head of mobile development that they are “borrowing” heavily from the beautiful mobile social network Path. Expect this problem to be fixed soon with something pretty special.
But don’t expect that to end the questions about Facebook’s valuation.