Facebook shares one third down

Failure to capitalise on the growing mobile market exacerbates investors' worries

Shares in Facebook, which have lost a third of their value since May, closed at $23.94 (£15.26) in frenzied after-hours trading on Wall Street yesterday. This is the first time they have dropped below $25 since the company's floatation, when they traded at $38.

With jittery investors fearing that Facebook's profits would come in below analysts' projections, shares had been falling all day prior to the announcement. In the event, however, things were not quite as bad as many had anticipated, with Facebook announcing revenues of $1.18bn (£750m) for the three months ending 30 June - more or less in line with most predictions. Not that this arrested the decline in share prices.

Facebook was the first American company to debut with a market value of more than $100bn ($63.8bn). However, many analysts, including Computing, questioned whether the form was really worth the value being put on it at the time.

We argued that each of Facebook's projected 1 billion users (955 million monthly active users according to the latest figures) was worth just 1 dollar to the company, rather than the $100 figure being bandied around before the floatation, and this in a world where online advertising revenues were falling.

In fact, online advertising revenues are slightly up, but not by enough to make much of a difference.

This is Facebook's real problem. Increasing the number of users, especially on mobile platforms, is relatively easy; monetising them is not.

In a conference call with analysts, CEO Mark Zuckerberg said that Facebook was currently concentrating its efforts on mobile services. "Our vision for platform is bigger than most people perceive," he said, somewhat mysteriously.

The company recently announced a new mobile engineering hub to be opened in London. There has also been speculation that Facebook might join Google and Microsoft in launching its own tablet or smartphone, but Zuckerberg batted away these rumours yesterday.

Whatever shape these plans for mobile take, analysts will want to see much firmer numbers and a more concrete vision if they are to be convinced that the company can reverse its fortunes. In the meantime Facebook faces further challenges.

A stock lock-up imposed on many Facebook employees after the IPO expires soon, which could lead to a large number of sales of the firm's shares further depressing their price. And social games firm Zynga - which brings in 12 per cent of Facebook's revenue - yesterday slashed its 2012 earnings forecasts after disappointing results.

All in all then, the rollercoaster ride for Facebook's investors continues. Those who argued that the initial IPO was a classic example of 1990s-stye hope over 2000s-style experience will feel vindicated as a little more air seemingly leaked out of the balloon yesterday.