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California Says Tax Revenue ‘at Risk’ From Facebook Drop

Facebook Inc. (FB)’s declining price may cost California “hundreds of millions of dollars” in revenue expected from taxes on capital gains, the state’s fiscal analyst said.

The owner of the world’s largest online social network, touched $19.82 today, the lowest price since the Menlo Park, California-based company first offered shares to the public at $38 on May 17.

The most populous U.S. state’s $91.3 billion budget, signed by Governor Jerry Brown in June, counted on $1.9 billion in income-tax revenue from company insiders such as Chief Executive Officer Mark Zuckerberg exercising options or sell shares, assuming an average price of $35. Facebook, which touched $45 May 18, has averaged $29.49 on the Nasdaq stock market.

“Facebook share prices have fallen far below levels assumed in the state’s revenue projections,” the nonpartisan Legislative Analyst’s Office said yesterday in a report. If “the lower share prices persist through November and December, hundreds of millions of dollars of income-tax revenue assumed in the state budget plan are at risk.”

Ashley Zandy, a Facebook spokeswoman, said the company didn’t have a comment. Executives and investors were expected to sell 157.4 million shares in the initial public offering, according to a regulatory filing.

Photographer: Frank May/DPA/Landov

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Photographer: Frank May/DPA/Landov

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Sales Growth

Facebook, which hasn’t closed above the $38 IPO price since May 18, its first day of trading, last week said second-quarter sales growth was 32 percent from the same period a year earlier, down from 45 percent in the previous three months. The company still needs to prove to investors that it can profit from the growing number of users who access the site on mobile devices, said Tom Forte, an analyst at Telsey Advisory Group in New York.

Zynga Inc. (ZNGA), an online-game developer based in San Francisco, went public in December and has declined from a $15.91 high on March 2 to as low as $2.68 today, a record.

A Zynga investor sued the company and the IPO underwriters this week, claiming shareholders were misled about its financial health. The company reported lower-than-expected second-quarter earnings July 25, and fell 37 percent the next day.

State finance officials typically update revenue estimates when presenting the governor’s proposed budget in January. New information on Facebook probably will be used in that update, according to the Legislative Analyst’s Office.

California, the world’s ninth-biggest economy, took in $7.2 billion from income taxes in April.

To contact the reporter on this story: James Nash in Los Angeles at jnash24@bloomberg.net

To contact the editor responsible for this story: William Glasgall at wglasgall@bloomberg.net

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