When Facebook reported its first set of quarterly earnings as a listed entity in late July, it slightly exceeded its own revenue forecasts. However, the news did not stop the company’s share price falling by as much as 8% in after-market trading, bringing its decline since the company’s May initial public offering (IPO) to nearly one-third.
The problem for Facebook was that while it made $295m in the second quarter of 2012, it had failed to provide investors with a performance to justify the extraordinary 100 times earnings valuation assigned to it just 10 weeks previously, or the 70 times earnings still implied by its share price. For investors, the cold, hard realisation was dawning that they had bought the hype and overpaid for their investments.
