Market analyst says “Let’s not go crazy” on Facebook’s second day

Facebook’s stock is tumbling well below its $38 IPO price
on its second day of trading on Monday, but one expert
tells Seattle’s Morning News it’s not time to freak out
yet.

“Let’s not go crazy,” said CBS MoneyWatch Editor-at-large
Jill Schlesinger on 97.3 KIRO FM. “Two days of trading
does not make a stock.”

On Monday, the stock dropped as low as $33, which
Schlesinger points out was closer to the price range of
$28 to $35, initially proposed for the shares. Last week,
the offering price range was increased to $34 to $38 a
share, said Schlesinger.

“We go out at $38, it looks like there is very strong
demand for it, and look where we are today at about $34 a
share,” said Schlesinger. “It looks like the initial range
was really the right range.”

Facebook’s initial public stock offering was one of the
most anticipated ever, and now serves as a bellwether for
other social media companies.

Shares of some related social media companies also
declined Monday. Zynga Inc., which makes FarmVille,
CityVille and Mafia Wars, and gets the bulk of its revenue
from Facebook users, fell 4 percent. LinkedIn Corp., a
network for professionals, also dropped 2 percent.

Schlesinger said all these companies are in a similar
situation.

“I think all of these companies are making it. They have
profits. They have revenue. The big question is, are they
priced correctly for what the companies are doing,” said
Schlesinger.

“When you have Facebook come out at $38 a share, that
meant that investors were paying $107 for every dollar of
earnings that the company created. That’s obviously crazy,
no one would do that. The only reason that people do that
is they think there’s going to be more than $1 of earnings
in the future. There’s going to be a lot more.”

When these companies go public, Schlesinger said “It’s
almost like a whole new game starts.”

“They’ve got to show that they can grow their earnings
consistently over time. That’s why people buy these
stocks,” said Schlesinger. “They don’t buy them just
because they’re cool and I have a Facebook account. They
buy them because they think ‘I can make money over the
long term with an innovative company like this.'”

So far, she said the jury’s still out, but adds, “It
[Facebook] continues to be a hot company.”

“There’s going to be tremendous innovation from this
company,” said Schlesinger. “They already have tons of
revenue coming from advertising. They’re diversifying that
revenue into non-display advertising revenue, and they’ve
got an engine of growth in there, which allows them to
capture information, the most valuable commodity of this
age.”

By JAMIE GRISWOLD, MyNorthwest.com Editor
The
Associated Press contributed to this report.