A few months ago Facebook filed its papers for a Initial Public Offering (IPO). The company was going to be public listed, as in the general public could not invest in Facebook by buying their shares. Facebook stood to benefit greatly and was expected to reach a valuation of $100 Billion (it eventually reached $104 Billion).
Everything seemed to be going Facebook’s way as far as the IPO was concerned. Facebook which was worth only a few thousands dollars eight years ago, rose to become worth more than $100 billion.
Today, it seems like not everything has not gone quite as smoothly. Facebook has been sued by investors literally within days of the IPO.
Why is Facebook sued?
According to a report in Reuters, a case has been filed against Facebook in New York. Apparently Facebook had advised analysts to reduce their forecasts for profits and revenues. This was allegedly only revealed to some investors. The investors who have sued Facebook, its CEO Mark Zuckerburg, Goldman Sachs Groups and JP Morgan Chase and Co claiming damages from the lack of information being supplied before investing.
Why did Facebook reduce their profit and revenue estimates?
Facebook earns a lot of their money through advertisements. These are served on its website and not on its mobile apps at least currently. As mobile phone and tablets start to become the goto gadget for people to access Facebook, there is a lesser chance for these advertisements from making money.
This is probably why Facebook bought Instagram to help improve it’s talent pool for making a successful mobile app. In other words, Facebook might see a dip in their revenues if they do not find a ways to bring in revenues through mobile phones.
Facebook’s share price has actually take a bit of a free fall in the past couple of days form $38 to $31 approximately. That is a rather sharp fall for a highly anticipated and celebrated IPO.
The court cases will probably go away and hopefully for Facebook go away fast, but the next few months will be interesting for Facebook watchers.
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