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Shareholder Sues Facebook After Stock Plunge (reuters.com)
An anonymous reader quotes a report from Reuters: Facebook and its chief executive Mark Zuckerberg were sued on Friday in what could be the first of many lawsuits over a disappointing earnings announcement by the social media company that wiped out about $120 billion of shareholder wealth. The complaint filed by shareholder James Kacouris in Manhattan federal court accused Facebook, Zuckerberg and Chief Financial Officer David Wehner of making misleading statements about or failing to disclose slowing revenue growth, falling operating margins, and declines in active users. Kacouris said the marketplace was "shocked" when "the truth" began to emerge on Wednesday from the Menlo Park, California-based company. He said the 19 percent plunge in Facebook shares the next day stemmed from federal securities law violations by the defendants. The lawsuit seeks class-action status and unspecified damages.
Businesses can only grow so fast and only so much. But people bid the prices up as if there is unlimited growth potential.
And when stocks are valued with a growth premium that can never be met, they have a tendency to crash when those lofty expectations aren't meant.
facebook is still quite profitable but wasn't worth what it was trading at.
I think the same way about Amazon and definitely the same about Tesla. Neither of those companies can meet the growth that is priced into the share price.