Facebook’s Fall Takes Toll on State Revenue

On August 17, Facebook shares closed at $19.05.

Projections by Gov. Jerry Brown’s Department of Finance upon which the current state budget is premised say in November Facebook stock will trade at $35. The Legislative Analyst’s estimate is $45.

If those predictions are true then the state will pocket $1.2 billion, the Department of Finance says, and $2.1 billion by the analyst’s reckoning.

As of August 17, Facebook shares are trading at 54 percent of the amount the Brown administration wants them to be in November and 42 percent of the price the analyst predicts the shares will trade it in 90 days.

That means, as of August 17, the tax receipts Brown expects the state to receive are $648 million rather than $1.2 billion and $882 million instead of the $2.1 billion the analyst initially expected.

In an August 1 follow-up to its initial estimates, the analyst noted that if “the lower share prices persist through November and December, hundreds of millions of dollars of income revenue assumed in the state budget are at risk.”

Five days later, Moody’s Investor Services described the analyst’s conclusions as a “credit negative development” but noted:

“A loss of hundreds of millions in revenue would equal less than 1 percent of the state’s $91 billion (general fund) budget. Given that California has faced mid-year budget gaps of tens of billions of dollars in recent years, we expect a gap of this size opening in the middle of the year to be manageable.”

On August 16, 271 million additional shares of Facebook became available for sale by the company’s directors and investors in the social network’s May IPO. On October 16, another 247 million shares will be “unlocked” and, on November 15, a “deluge” of 1.2 billion more shares, according to USA Today.

Investors who bought Facebook shares when the company was private paid an average price of $40 per share in early 2012, USA Today reports.

On the plus side, the analyst says that “because the state’s Facebook estimates assumed little in the way of discretionary stock trading activity, it is possible – but not certain – that elevated trading activity related to the stock could help state tax revenues to some extent.

“For example, if the recent weakness in Facebook stock causes a significant portion of worried ‘inside investors’ — those with large blocks of Facebook stock prior to the IPO — to sell their shares in 2012, this increased stock trade activity and resulting income tax payments could offset some of the state revenue weakness that otherwise could result from Facebook’s depressed share price.”

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