How the Facebook IPO put its Reputation in Crisis

By now everyone has heard about the daily hits Facebook’s stock price is taking due to news that their updated revenue projections were only shared with certain investors. However in all the madness, few have stopped to think about how this saga and the handling of the IPO itself are affecting its reputation.

In the run-up to the Facebook IPO, there was plenty of hype from both casual and professional investors who expected Facebook to deliver huge returns for those who were looking to flip it in the short-term. Many were comparing Facebook to Google’s IPO, which opened in August of 2004 at $100 per share and closed at year-end at $194. Even though professional investors valued Facebook in the low-$30 per share range based on recent revenue growth and expected growth, the high demand caused it to open at $38. The week after it opened, however, the price quickly tumbled into the low-$30s range when news broke that Morgan Stanley had lowered its revenue forecasts for Facebook and only told certain investors. Now Facebook is dealing with a Reputation911 crisis!

The Facebook Financial Crisis

With all of the talk about Facebook’s lowered revenue forecasts, many of those who bought stock during the IPO are cashing out because they perceive the stock to be too risky. As the stock price drops, Facebook employees are seeing their own fortunes take a hit. Additionally, the increased rhetoric about how Facebook’s IPO was overvalued could prohibit shares from ever again achieving the $38 mark per share held on opening day. If stock prices continue to fall and investors do not feel that they are receiving an adequate return on investment, then they might even force out the Facebook executives that have been there since its inception. As you might expect, all of this negative publicity has also impacted Facebook’s reputation.

 The Facebook Reputation Crisis

Facebook’s reputation as the leader in social networking is now being questioned. News of the reduced earnings has caused many investors to ask questions that Facebook executives would rather not think about. Some have predicted that Facebook has hit its peak, and that its users are reducing usage and could eventually leave it behind altogether like Myspace’s users did. Others are wondering if there is room for growth in Facebook’s advertising revenue strategy, which only generates marginal returns, or if an increase in advertising will drive users away. In reality this whole fiasco has severely damaged Facebook’s reputation and might be enough to drive many of Facebook’s users away. The shadiness of Morgan Stanley’s handling of the reduced revenue projections has caused many Facebook users to lose trust in the company.

The Importance of Reputation

Reputation is key for a company like Facebook. The company first grew because of word-of-mouth (people felt compelled to join a site that all of their friends were using), and it owns users’ private details because of user trust. If that trust disappears as a result of the damage done to Facebook’s reputation, Facebook will have no basis for existence.

Although Facebook disappearing completely seems unlikely, reputation is important for any company. If your customers do not trust you, either because of negative reviews they read about your company on Yelp or Google Places, or because of comments left on your company’s Facebook page, then they will choose to do business with your competitors instead. It is vital that you reach out to Reputation911 right away to find out what others are saying about your company, and how you can take back control of your online reputation. Like Facebook’s reputation, your company’s reputation will continue to decline every second that you delay doing something about negative press, so contact us today.