Can Facebook shares recover from steep selloff?


AP
Facebook (FB) shares have been in a dive, plunging some 21 percent since hitting $72 in early March. Last week was particularly rough, with the stock falling 10 percent over two days to close Friday at $56.75.

The reason for the sell-off is unclear. Certainly the stock was swept up in a wave of negativity toward momentum stocks, with some of the hottest names in the market taking a hit. Shares of investor darling Tesla Motors (TSLA) fell nearly 6 percent Friday, and Netflix (NFLX) dropped by nearly 5 percent.

As if that wasn't enough, investors seemed to be also turning against the technology sector overall. The tech-heavy Nasdaq had its worst day Friday since February with a 2.6 percent loss. The Global X Social Media ETF (SOCL) -- which has 12 percent of its net assets in Facebook -- got a thorough drubbing last week.

So is Facebook falling victim to a broad pessimism toward stocks, or are investors starting to turn against CEO Mark Zuckerberg and his deep-pocketed spending sprees? Shares have been in a notable decline ever since Facebook decided to shell out $2 billion to buy Oculus VR, a tiny virtual-reality company focused on making headsets for video gaming. Earlier this year, Facebook spent a jaw-dropping $19 billion to buy mobile messaging service WhatsApp.

Investors know you have to spend money to make money -- witness the market's support for Amazon's (AMZN) pay-to-grow mentality -- but the $2 billion moonshot bet on Oculus seemed to break some of Facebook's enthusiasm.

A couple of other factors may have hit the stock as well. Sheryl Sandberg, Facebook's chief operating officer, has sold off some $400 million in shares since the stock went public. Some money from the sale went to pay taxes. "It leads one to believe that you should be a little bit nervous here, a little bit concerned about Sandberg because she was the adult that was brought in to help run Facebook," Andrew Busch, editor of The Busch Update newsletter, told CNBC. Zuckerberg has also been selling shares at a faster pace than some expected.

Sandberg is no longer a billionaire after Friday's drop in Facebook's stock price, reports MarketWatch. Forbes magazine estimated her net worth at $980 million.

So where does Facebook head from here? At some point, the broader selloff in momentum stocks will stop. Many people made money riding Facebook's uptrend and "performance chasing in these momentum names," Seth Setrakian, co-head of global equities at First New York Securities, told The Wall Street Journal. "It's been a long time since I've seen this kind of carnage," he added.

Facebook is set to announce first-quarter earnings on April 23, and the stock may start to ramp up ahead of the news. The quarterly performance could set the stock on an upward trend again or, if the numbers aren't up to snuff, send shares into a prolonged decline. At the very least, Zuckerberg will likely try to allay investor concerns by shedding more light on recent acquisitions and why they make sense for the company.
  • Kim Peterson

    Kim Peterson is a financial journalist covering business and the economy. She has written for several online and print publications, including MSN Money and The Seattle Times.