Why Facebook's stock is tanking

Well, the euphoria over Facebook didn't last long, did it? I would guess that the enthusiasm over Facebook's stock lasted a few minutes into its first-day trading session, peaking with a rare $45 order that many believe was more of a fluke than a true indication of demand. Since then, reality has taken hold. The stock opened with a thud, and is down more than 12 percent to $33.56, a sobering reality for anyone caught with Facebook shares on Friday, when the stock closed just above its offering price of $38. (Facebook shares closed Monday at $34.03, down 11 percent.) So how did the most heavily hyped stock completely fall on its face? There are a lot of reasons: glitches with the Nasdaq system that slowed early orders, an IPO price that got a last-minute bump, and indications of lackluster demand from institutional investors. But the most important is the underlying concern and growing realization that Facebook just isn't worth $100 billion. "With revenue and (earnings before interest, taxes, depreciation, and amortization) growth decelerating in 2012, we find Facebook's current valuation unappealing," said BTIG Research analyst Richard Greenfield. That's not to say Facebook won't be worth $100 billion some day, but it doesn't deserve that valuation now. The company still doesn't quite know how to fully take advantage of its huge user base to generate revenue and is still tinkering around with different business models beyond its core display advertisement business.

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