CITY FOCUS: Facebook's fight-back starts here as the social media behemoth outlines plans to keep monetising

Without a doubt, the stock market float was one of the most highly-anticipated of the past decade. Following soaring success, potential investors clamoured for a piece of Facebook when the social networking company began trading public shares last May.

Demand in the run-up to the big day was so intense that Facebook increased the number of shares it planned to sell by 25 per cent. But once the bell tolled, a very different picture emerged.

Technical glitches on Wall Street’s NASDAQ exchange saw trading in the ‘must-have’ stock delayed for half an hour, only for shares to end the day just a fraction higher than the $38 at which they floated. The long-promised gold rush proved to be nothing more than a mirage in the Californian desert.

Facebook's finances: The major player in social media is needing to keep shareholders on side with new and innovative ways to keep making money

Then the bubble burst and shares dropped like a stone, bottoming at $18 in September before picking up again. Now, 12 months later, they languish in the mid-$20s.

Over the past year two very different types of investors have emerged.

In one camp there are the early backers. These investors, including Accel Partners and U2 frontman Bono, bought into the company when it was private, paying a fraction of the asking price for Facebook stock.

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When the shares went public, many were able to cash in for huge returns.

Estimates show that Goldman Sachs alone made $923million from its shares.

The other, more disgruntled, investors are those who bought in on day one of Wall Street trading.

Lured by the promise of ballooning popularity and ever-increasing returns, they saw $38 as a small price to pay for a ticket to the Facebook ride.

 

But when the shares came off the rails, many saw a third of their investment wiped out in days.

To make matters worse, details emerged of analysts at Facebook’s banks – including Morgan Stanley – downgrading estimates for the company’s financial performance with only hours to go until shares began trading.

They were concerned about the amount of money the company could make from people browsing the site on mobiles and tablet computers.

Following the revelations, it was not long until the lawsuits began flooding in – with shareholders angry at Facebook, its young executives including founder Mark Zuckerberg, the banks, and the NASDAQ exchange itself.

So many arrived that some 31 lawsuits have been bundled under an umbrella case in a southern New York court to make handling the legal complaints more manageable.

But despite its shares, Facebook fared relatively well over the year.

Before its float, the group made 85 per cent of revenues from desktop adverts. The rest of its sales came from deals with companies that build online games for the site.

But this model was threatened by the steady march of mobile phones – which do not show adverts.

Now, after experimenting with ten different ways to make money, 30 per cent of Facebook’s revenues come from mobile users. And overall revenues have risen as well – up 36 per cent to $1.46billion in the most recent set of three-month results.

‘Unlike most companies, Facebook is aggressively investing for the long term, which is depressing its near-terms earnings in the process,’ wrote Business Insider boss Henry Blodget, a former technology analyst.

‘This investment is likely to give Facebook a much better chance of creating a much more value company over the long haul.’

Analyst Colin Cieszynski, from CMC Markets, said the group’s shares would pick up in the coming year. ‘As the IPO fades into memory it starts to build a track record as a public company, giving analysts more data to build realistic valuations and models,’ he said.

But a rosier outlook does not guarantee a smooth ride for investors from here on in.

Already Facebook has come under pressure as the number of users drops.

Analysts estimate it lost 10million users from the US over the past year, with the number of UK users also down.

Furthermore, over the weekend an extra 48million shares became available for trading.

These were company shares given to employees before the float on the understanding they could not sell them until a certain date. Many may now choose to cash in.

 

But although the number is big, it is a mere 2.6 per cent of the group’s total 1.74billion shares washing around the market.

And even though Facebook’s market value has fallen from $104billion on the day it listed to a more moderate $69billion it is still, Cieszynski says, in poll position to be included in the S&P 500.

If this happens then millions of investors, on both sides of the Atlantic, will have exposure to the company’s performance through tracker funds and pensions.

When that day comes Facebook will cease to be the entertaining circus it has been to British investors so far – as they take a keen interest in the fate of the still-mighty social media goliath.