Facebook's 33% Chance of Success
The company surprised investors in the third quarter of 2011 with its first-ever profit of $638,000. However, as the chart above shows, Pandora is finding that it is in a highly competitive landscape and trades in a market that is anything but forgiving. Since reaching $14.75 on February 6, the stock is down 41% and 66% from its 52-week high.
The reason for the punishment was simple, the company reported fiscal fourth-quarter revenue and profit per share that arrived below analysts' estimates, and forecast the current quarter's results to miss by a pretty significant margin. Revenue in the three months ended in January rose to $81.3 million, yielding a net loss of 3 cents a share while analysts had been projecting $83 million and a loss of 2 cents a share.
As excited as the market was with its IPO, investors have quickly turned away and waiting for the company to prove that it does have a business that is sustainable. Will Facebook make the same mistake?
Groupon was another popular IPO and one that is now currently trading at its 52-week low. The company provides a way for users to purchase deeply discounted vouchers for use at local businesses such as restaurants and salons. Does that make it a good investment?
Groupon first opened for trading on Nov. 4 at $20 and reached an all-time high of $31.14 while closing respectably upon its open price at $26.11. But unlike Pandora, it did not take long for panic to set in as the stock quickly dropped to the low teens of $14.85 only a few weeks after first going public. Today the stock trades at $10.31, down 60% since reaching $25.84 on Feb. 8 and down 67% from its 52-week high.
What investors quickly realized is that not only are the company's chances of earning a profit more in doubt, but competition is exceptionally fierce among existing titans such as Google, Amazon(AMZN) and a rejuvenated Yahoo!(YHOO) . Clearly, it would take little to no investment at all from either of these names to launch a competing product to squash Groupon's chances of survival.
As with Facebook, its business model was relatively new but investors placed more value on the idea rather than the business. So the question is, will Facebook become a similar mistake?