Facebook: It Gets Worse

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Facebook (Nasdaq: FB  ) investors caught a break last week. For the first time since last month's fumbled IPO, the social-networking website operator delivered a week of capital appreciation.

It wasn't just a minor uptick, either. Shares of Facebook popped nearly 11% higher this past week, closing back above $30.

We're still a far cry from the $38 that IPO buyers were shelling out last month, though. Don't even bother working the cruel math from the $45 peak the stock hit moments after the its debut. There are a lot of people still smarting here, even though the stock hit $30 on Friday for the first time since late May.

Companies will tell you they have better things to do than watch stock prices that they can't control. Public companies are simply trying to grow their businesses. They leave the daily fluctuations to Mr. Market's whims. However, a share price is more important than a company lets on. After all, why would a company use stock options and grants as incentives if they didn't matter or if they thought a performance didn't ultimately dictate a direction?

Attracting employees is important to every company, and here is where Facebook has to be gravely worried that its stock is trading 21% below last month's IPO price.  

Facebook COO Sheryl Sandberg -- who, unlike Mark Zuckerberg, actually stuck around at Harvard long enough to get her degree and eventual MBA -- was plucked from Google (Nasdaq: GOOG  ) , where she was its vice president of global online sales and operations. She isn't the only who left Big G for Facebook.

Gmail's creator, Android's senior product manager, the guy who led Google's social research, and a co-developer of Google Maps and Google Wave are just some of the many sharp minds who migrated from the leading search company to Facebook ahead of the IPO.

They all had different reasons for making the switch, but it certainly didn't hurt that Google's stock was largely stagnant as Facebook's valuation was skyrocketing.

What about now? Hiring stars at other dot-com powerhouse just got harder. When you have a broken IPO, it's hard to sell stock as an incentive.

Groupon (Nasdaq: GRPN  ) and Zynga (Nasdaq: ZNGA  ) are two companies that hopped on Facebook's coattails when they went public late last year. Groupon's daily deals went viral as Facebook users shared the prepaid deals with their friends. A full 15% of Facebook's first-quarter revenue came from Zynga's presence on the site. Now that Groupon and Zynga are trading for little more than half of their IPO prices, recruiting prized execs has gotten harder.

Clearly, there's no shortage of people wanting to work at Facebook, Groupon, and Zynga, but stealing another company's star won't be easy now that all three companies are officially busted IPOs.

Facebook's sub-$38 price will also make future acquisitions a challenge. Potential acquisitions will probably want more cash than stock, eating into the advantage that public companies typically have over their private rivals.

Facebook took a big step up in this past week's trading, but it's going to have to take a lot more of these steps if it wants make the most of its public status.

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The Motley Fool owns shares of Facebook and Google. Motley Fool newsletter services have recommended buying shares of Google. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Read/Post Comments (3) | Recommend This Article (6)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 17, 2012, at 7:26 PM, earthunit wrote:

    Still trying to bash Facebook?!

    LOL. Give it a rest.

  • Report this Comment On June 17, 2012, at 8:48 PM, bottomfisherman wrote:

    I do not think anyone needs to try to "bash" Facebook, just look at the price decline it is doing a good enough job on its own being a dog.

  • Report this Comment On June 18, 2012, at 12:40 PM, naughtyguy wrote:

    My brother passed away two and a half years ago. He is still a member of FB!

    I wonder how many of the 900 million facebook members are not active any more. Some of my friends have more than one membership. FB will have to perform the impossible to deserve their market cap. I (and most of my friends) are no longer reading their news feeds.

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