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Sat, 06 Oct 2012 19:15:00 GMT | By Deirdre McMurdy, MSN Money

Does Facebook deserve more investor love?

It may have a billion users, but stock markets just don’t care.


Just like men who claim their wives don’t really understand them, CEOs tend to say the same thing about financial markets. If only investors really took the time to appreciate all their finer points, it’s implied, the stock price would trade at much higher multiples.

Given that Mark Zuckerberg only just got married to Priscilla Chan a few months ago, it’s unlikely that he’s yet reached the point of whining about spousal undervaluation. But there’s not much question that he feels that the stock price of Facebook could use a lot more love and understanding.

All the more so given that the social networking site — which had its IPO over the summer — just signed up its one billionth account this past week.

Given all the market hype around Facebook’s first public stock issue, Zuckerberg could be forgiven for wondering if he has a big piece of spinach stuck in his teeth. Or whatever the corporate equivalent of that might happen to be.

Since the company, which he famously started in his dorm room at Harvard, started trading, it’s gone from its bloated $38 a share debut price to a low of around $17, settling in around $20.

The first thing to grasp, of course, is that it’s not personal. Stock valuations are a very strange amalgam of collective emotions (greed and fear are dominant), a random assortment of current information (the prevailing view on the outlook for everything from the future of democracy in China to the price of gold to the birthrate in Africa), a pinch of macroeconomic expectation and a dash of hope. But the main ingredient is always the same: estimates of future earnings.

Given how imprecise these valuations are, companies put a great deal of effort into spinning the positive news and “reaching out to stakeholders.” But markets are stubborn. And once they’re convinced that the future upside is limited or negative, it’s hard to shift them off that view.

Facebook is a classic example of that. And since it has gone public, it hasn’t done a great deal to change the view that it’s got a lot of ground to recover — one billion Facebook profiles or not.

To that point, even the one billion mark is a specious one: there are an estimated 80 million fake Facebook accounts — almost nine per cent of all users.

(Continued)
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