MAYBE it's just as well that social networking giant Facebook does not have a "dislike" button on its website. Its much-anticipated initial public offering (IPO) of 421 million shares worth around US$16 billion - at the offer price of US$38 per share - was the largest-ever by a US technology company and the subject of frenzied discussions and hyped up reporting in the media. Yet soon after they started trading, the shares started to sell at a discount and are currently going for well below the offer price.

There are various theories as to what went wrong. However, there were certain facts that any discerning market watcher would have, or should have, noted. The principal among them was that the US$38 per share price tag was more than 100 times historical earnings. In comparison, Apple's stock trades at 14 times historical earnings while Google's trades at 19 times.

On top of that, Facebook had recently issued a warning of a slowdown in its online advertising business and its concerns about the growing use of mobile devices to access the website. The hard truth is that despite having 900 million users - a figure which is expected to cross one billion later this year - Facebook has not been able to monetise this user traffic. According to a recent estimate, Facebook's average revenue per user was US$1.17 last quarter, down 7 per cent from a year-ago period.

At its offer price, Facebook has a market capitalisation of US$104 billion. Contrast this with US$3.7 billion in revenue in 2011 with US$1 billion in profit. According to a number of analysts, a doubling in Facebook's market value may require US$30 billion or more of revenue by 2017, five to six times what the company is expected to generate this year. Such a revenue could produce US$3 a share in earnings and support a US$70 stock price. The problem however is that Facebook does not yet have a "killer advertising format" like Google's Adworks. On top of that, new growth is coming from newly emerging economies like Indonesia and that too via mobile devices. Whether Facebook can find the magic formula to put everything in place is still up in the air. And this is precisely the reason that reality has begun to bite in the stock market.

Another unsavoury aspect of the Facebook IPO saga is the role of investment bankers who advised the company and underwrote the stock offering. In what many analysts have described as a throwback to the dot.com era, the concerns centre on Morgan Stanley, Goldman Sachs and other banks involved in the IPO choosing to share a negative outlook about Facebook with only a select group of clients, rather than broadly with all investors. A number of lawsuits have been filed by disgruntled shareholders. While these go into court and prompt investigation by oversight authorities, Facebook's boss Mark Zuckerberg needs to come up with a new direction for the social networking giant. Otherwise a collective distrust could derail the Internet world's latest poster child.