Facebook Chief Executive Mark Zuckerberg has urged the company's… (Justin Sullivan, Getty…)
Facebook Inc. is in a world of hurt on Wall Street but its employees are also feeling the sting of the stock's sharp sell-off.
For many staffers, the precipitous drop means their Facebook stock is not going to yield the returns they hoped, at least not right away. They have had to defer or downsize their dreams of buying a home or a new car.
For The Record
Los Angeles Times Sunday, August 19, 2012 Home Edition Main News Part A Page 4 News Desk 1 inches; 58 words Type of Material: Correction
Facebook stock: In the Aug. 18 Business section, an article about the consequences for Facebook employees of the decline in the company's stock price said that S&P Capital IQ analyst Scott Kessler had raised his rating on shares of Facebook Inc. from buy to hold before the first lock-ups expired. Kessler raised his rating from hold to buy.
"People made life plans and calculations," said a Silicon Valley chief executive who spoke on the condition of anonymity to preserve his relationships inside Facebook. "This is very, very painful."
And the noisy public criticism of Facebook has become nearly impossible to shrug off, hurting employee morale.
"These are people who like to win. Now there's this external measure of winning which is difficult to ignore," said one ex-Facebook employee who also requested anonymity to preserve relationships at the company. "It doesn't feel good."
Facebook, the world's largest social network with nearly 1 billion users, became the only U.S. company to debut with a market value of more than $100 billion. But it has been all downhill from there. Shares closed Friday down 4%, or 82 cents, to $19.05, almost exactly half of the $38 offering price in May.
They've been dragged down by worries that the company's popularity has stalled and that it has not figured out how to sell advertising on mobile devices as users gravitate to them.
Shares also were walloped this week with the lifting of restrictions on insiders selling stock. It was the first time since the initial public offering that investors -- although not employees -- could unload shares. Companies that go public typically require insiders to hold on to their stock to keep the market from being flooded with shares.
On Thursday, a combined 271 million Facebook shares were eligible to be sold. More than 1.4 billion more shares held by early investors and Facebook employees will be freed up for trading by year's end. Many employees will be able to sell shares beginning in October.
That has spooked investors, worried that more insiders will unload millions of additional shares and the stock will continue to swoon. Other Internet companies that have gone public over the last year have also gotten hammered when their lockup periods expired.
But Facebook has other problems. Even as many stock analysts hold positive long-term views, Facebook is seeing an inevitable slowdown in growth, and it has not figured out the challenge of making money from the growing number of users who access the social network from mobile devices.
Last month, as Facebook reported its first earnings as a publicly traded company, Chief Executive Mark Zuckerberg and his lieutenants trumpeted the growth prospects of the company he built in his dorm room eight years ago.
Although the second-quarter results had tidbits of good news -- revenue rose 32%, beating analysts' forecasts, and company executives said they were seeing early results in selling ads on mobile devices -- nothing Zuckerberg said reassured investors about Facebook's moneymaking potential.
"I think Facebook has a lot of things going for it," said S&P Capital IQ analyst Scott Kessler, who raised his rating on shares of Facebook from "buy" to "hold" before the first lockups expired. "Unfortunately the stock price has not been one of them."
These days the Cassandras are not just outside the company but inside it, too, making it tougher for Facebook to buck up morale and recruit talent. Facebook, which used to have no trouble winning top talent from Google Inc. and other Internet rivals, is no longer the draw it once was.
"The weakness in the stock price creates a huge human resources problem for the company because stock options are a major part of compensation," University of Santa Clara law professor Stephen F. Diamond said. "The company may be tempted to re-price the options or be forced to increase cash compensation or else risk losing key employees. That puts pressure on profit margins and further pressures the stock."
Zuckerberg has urged the rank and file to ignore the stock gyrations and stay focused on building the social networking service.
But he acknowledged for the first time this month that Facebook's plunging stock price had taken a toll on morale. In a companywide meeting first reported by the Wall Street Journal, Zuckerberg told employees he understood it was "painful" to watch investors dump -- and dump on -- the stock.
A Facebook spokesman declined to comment.
But many employees have not lost faith in Facebook, insiders say.
Paul Saffo, managing director of foresight at investment research firm Discern Analytics, said tech workers must strike a balance between wanting to change the world and wanting to get rich.
"Facebook's stock flop is a wonderful corrective tonic that reminds people that there are lots of reason to be in tech, but if you are in it just for the money, you shouldn't be in it," Saffo said. "Money is a terrible reason to go into tech. More companies go out of business than go public in Silicon Valley."